NCM® Associates has been facilitating 20 Groups since 1947. And even from those early days, our moderators and member dealers have focused on the Net Profit to Gross Profit Percentage (Net-to-Gross %) as a key metric of perfor­mance measurement. Over at least the last three decades, the NCM 20 Group community has established 30% Net-to-Gross (BOT*) as the “best practices guideline” for domestic and non-high line import dealers. Yet we are continually asked by dealers and their managers, “How do we structure our store to achieve this target guideline?” Following is the generic (all franchise) example that we use for all management training at the NCM Institute Center for Automotive Retail Excel­lence.

Because of the differing financial reporting formats required by the manufacturers, it’s understandable why dealership personnel get confused when trying to understand the Net-to-Gross structure. That’s why this simple generic format is helpful, particularly once you understand “what goes where” when looking at the groupings of financial data.

For an apples-to-apples comparison across all franchise lines, include the following items on Line 3, Adjusted Gross Profit:  F&I Net Income (after adjustments and chargebacks, but before F&I compensation), Doc. Fees, Manufacturer Incentives, and “hard packs.” The term “adjusted” is used to denote that this line includes all monies received that relates to the sale of a vehicle; many dealers often record some, or all, of this income in the Net Additions & Deductions section.

For this analysis exercise, Controllable Expenses should include the following:

All Other Personnel, Operating, Semi-Fixed, and Fixed Expenses should be included in the Limited Control and Fixed Expenses group.

The final category, Net Additions and Deductions, should include: 1) Net  Rental and Leasing Division Income; 2) Cash Discounts Earned; 3) Interest and Dividend Income; 4) Gain (Loss) on Fixed Assets or Securities; 5) Bad Debts Recovered; 6) Vending Machine Income; 7) Storage Income; 8) Other Non-Operating Income; 9) Allowance for Doubtful Accounts; 10) Other Non-Operating Expenses.

Lest there be any misunderstanding, here’s an important parting comment: Everyone in the NCM community will agree that it’s better to have $500,000 Net Profit at 20% Net-to-Gross than it is to have $300,000 Net Profit at 30% Net-to-Gross.

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 *Before owners' salaries and bonuses and before income taxes.