Hey Sara,
I keep hearing about gross profit, but whenever someone explains it, I feel like I need a translator. What is it, why does it matter, and how do I actually make it work for my dealership?
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Let’s talk about gross profit. You’ve probably heard it a thousand times in meetings, podcasts, or random conversations that make your eyes glaze over. Maybe you even nod along, pretending you get it, while your brain goes, “Blah blah blah, numbers.” I get it. Gross profit sounds like it should be simple, but when someone throws around percentages and margins, it can feel like you’re solving a Rubik’s Cube in the dark. Don’t worry — I’m here to make it less confusing (and maybe even a little fun).
So, What Exactly Is Gross Profit?
Let’s keep it simple: gross profit is the money your dealership makes after covering the direct costs of whatever you sell. These direct costs are called Cost of Goods Sold (or COGS, because who doesn’t love an acronym?), and they include things like the cost of parts, equipment, and labor for service jobs.
Gross profit is like the leftovers after dinner. Imagine your revenue as the big meal you’ve prepared, and the cost of goods sold as the portion you needed to cook it. What’s left — your gross profit — is what you can use for dessert, or in this case, to run your dealership and make a profit.
Tip 1: Start With This Simple Math
If you can subtract, you can figure out gross profit. Here’s the magic formula:
Revenue – Cost Of Goods Sold = Gross Profit
Let’s say you sell a fancy new tractor for $20,000. The cost to you (COGS) was $15,000. Here’s the math:
$20,000 – $15,000 = $5,000
Boom. That $5,000 is your gross profit. See? Not so scary.
Knowing your COGS for each department — parts, service, and sales — is key. This might take a little digging, especially in the service department, where labor can be a big part of the cost. But once you’ve got those numbers, you’re halfway there.
Tip 2: Break It Down By Department
Here’s where gross profit gets really useful: when you track it by department, you can see where the money is coming from (and where it’s leaking out).
Parts Department:
Gross profit in the parts department is all about pricing. If you’re selling parts for the same price you paid for them, you’re not making money — you’re just moving boxes. Track how much you paid for the parts (COGS) versus what you sold them for. Adjust your pricing as needed to ensure you’re hitting a healthy margin.
Service Department:
Service gross profit is trickier because labor is a big factor. If you’re undercharging for labor or letting non-billable hours pile up, your gross profit will take a hit. Use a flat-rate guide to make sure you’re covering labor costs and still making money on service jobs.
Sales Department:
For wholegoods, gross profit depends on how much you pay for inventory versus how much you sell it for. Your margins will suffer if you’re offering deep discounts or overstocking on slow-moving items. Track every sale to see what’s working and what’s not.
Tip 3: Remember, Every Dollar Adds Up
Here’s the fun part: every extra dollar of gross profit is money you can use to grow your business—or reward yourself.
- Want to give your team a bonus? That’s gross profit.
- Need to upgrade your dealership’s website? Gross profit.
- Dreaming of a beach vacation with no emails and no tech questions? Gross profit again.
When you understand gross profit, you can see how saving a little here and earning a little more there adds up to something meaningful. Maybe it’s not just “numbers” after all — it’s your path to less stress and more success.
Three Ways To Boost Gross Profit Today
Now that you know what gross profit is and how to track it, here are three quick tips to give it a boost:
- Stop Discounting Everything:
Discounts feel like a great way to close a sale, but if you’re slashing margins on every deal, you’re hurting your bottom line. Offer discounts strategically — like for slow-moving inventory or loyal customers — not as a default.
- Focus On Efficiency:
Time is money, especially in the service department. Streamline processes, minimize non-billable hours, and make sure your techs are working on profitable jobs.
- Reevaluate Pricing:
When was the last time you adjusted your pricing? If it’s been a while, it’s time to take a fresh look. Small increases on parts or labor rates can make a big difference in your gross profit over time.
The Bottom Line
Gross profit doesn’t have to be a mystery or a headache. Once you understand the basics — subtracting COGS from revenue and tracking it by department — you’ll start to see where your dealership is thriving and where you can improve.
So, the next time someone says, “gross profit,” you won’t hear “blah blah blah, numbers.” Instead, you’ll hear, “That’s the key to my next vacation.” And who doesn’t love that?
Let’s make your gross profit work for you — and maybe even have a little fun along the way.
Ready to transform your dealership and boost your profitability? Join our 5 Weeks to a Profitable Dealership program for only $195 and gain access to impactful daily videos, practical worksheets, and homework assignments that help you immediately apply what you learn. From sales and parts to service and beyond, we’ll guide you through every department with tools designed to drive real change and long-term success.
This isn’t just about learning—it’s about rolling up your sleeves and making real progress. Are you ready to start seeing results? Sign up now and invest in your dealership’s future!
You’ve got this! 🌟
Sara Hey
