What’s Your Time Worth?

Here in Orwigsburg, Pa., my German ancestors and I leave our weather predictions up to a groundhog in Punxsutawney, Pa. Predicting and Prognosticating is not in my blood, and you wouldn’t want my advice.

Therefore, I will leave all of the Industry predictions up to the experts.

Instead, I wanted to ask this question as you consider Financial Planning: How much is your time (and your employees’ time) worth? How much money do you generate per human-hour when retailing vehicles? How much money would you generate per hour by retailing Vehicle Service Contracts (VSCs)?

Hourly Rate for Retailing Vehicles

On average, there are about 26 selling days (including Saturdays) in a month. If you have three employees, who each work an average of 8 hours a day (wouldn’t you love an 8-hour day), there are 26 days x 8 hours x 3 employees or 624 working hours in a month.

If you sell 20 cars per month, and average $2,000 gross profit per vehicle, your hourly rate for retailing vehicles is:

$2,000 per vehicle x 20 cars / 624 hours = $64 per hour!

Let’s assume that one salesperson sold all of those cars and let’s assume that this person makes 25 percent commission. This salesperson would be making about $50 per hour.

Hourly Rate for Selling VSCs

If you currently have a very successful F&I and vehicle service contract component of your business, then congratulations and no need to read further. If you are not focused on VSC profit, then consider the following analysis.

In my example, you are already selling 20 vehicles per month. Therefore, you have 20 potential VSC customers. You do not have to advertise to get them in the dealership, you don’t have to follow-up, you don’t have to test drive with them, you just have to spend a little bit of time presenting a VSC before they walk out the door and drive away.

At the most, it’s going to take you 20 minutes to properly present a VSC. If you spend 20 minutes with each of 20 customers, you’ll have spent a total of about 7 hours selling VSCs. If you are successful only 30 percent of the time, you will have sold 6 VSCs. Let’s assume that you have a profit of $400 per contract, which is conservative. Your hourly rate for selling VSCs is:

$400 per VSC x 6 VSCs / 7 hours = $343 per hour!

Your salesperson, at 25%, will have an impressive $86 per hour to show for their efforts.

As the National Sales Manager for Preferred Warranties, I’m obviously biased, but just think about the opportunity that you are missing if you are not focused on offering and selling VSCs to every car buyer, every time:

I love manipulating statistics – makes me feel like a politician! But, you have to think about this one!

Best wishes for a Prosperous 2010.