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Maximizing Profits in the F&I Department

The F&I department should be the most profitable department in any dealership, but in order to gauge how successful the department is it’s imperative to establish benchmarks and develop a plan to meet those goals.

The F&I department should be the most profitable square footage in your dealership. How do you know if you are maximizing your profit opportunities? You may think you are doing a good job, but you won’t know for sure unless you benchmark your dealership against the best performers. This article will give you these benchmarks and some the steps you need to take to get there.

Setting Specific Benchmarks

  1. F&I Gross as a Percent of New and Used Retail Sales – Benchmark – 5.0% - To calculate this number for your store, take the total F&I gross and divide it by the total sales dollars generated by the sale of new and used retail units. Do not include wholesale sales or dealer transfers. I find this calculation is better than F&I gross per retail unit because it levels the playing field between dealers that are heavily motorized and those that are heavily into towables. However, experience tells me that towables heavy dealers tend to have a higher percent than motorized heavy dealers.
  2. New Finance Penetration on New Retail Units – Benchmark – 65% - Take your total new finance contracts and divide it by the new retail units to get this percent.
  3. Used Finance Penetration on Used Retail Units – Benchmark – 50% - Take your total used finance contracts and divide it by the used retail units to get this percent.
  4. New Finance Gross per Contract as a Percent of Average Sales Price of New Retail Units – Benchmark – 3.5% - To calculate this, take the average finance gross on new retail unit sales and divide it by the average sales price of your new units.
  5. Used Finance Gross per Contract as a Percent of Average Sales Price of Used Retail Units – Benchmark – 5.5% - To calculate this, take the average finance gross on used retail unit sales and divide it by the average sales price of your used units.
  6. New Service Contract Penetration as a Percent of New Retail Sales – Benchmark – 60% - Take your total service contracts sold on new units and divide it by the total number of new retail units sold.
  7. Used Service Contract Penetration as a Percent of Used Retail Sales – Benchmark – 45% - Take your total service contracts sold on used units and divide it by the total number of used retail units sold.
  8. New Service Contract Gross as a Percent of Average Sales Price of New Retail Units – Benchmark – 4.0% - This is the amount of service gross on new units divided by the average new retail unit sales price. To get to this benchmark, dealers are marking up their extended service contracts by 3.0 to 3.5 times. This benchmark is unattainable in certain states that regulate the markup. Two states that I know of that do this are Florida and Pennsylvania. Obviously you need to know your state laws before increasing your extended service contract markups.
  9. Used Service Contract Gross as a Percent of Average Sales Price of Used Retail Units – Benchmark – 6.0% - This is the amount of service gross on used units divided by the average used retail unit sales price. Markup policies are the same as mentioned above in new service contracts.
  10. Other F&I Gross per Contract – Benchmark - $500 Gross per Contract – This benchmark is a little tricky, because it incorporates all items sold that are not on the financial statement. The following are included in the financial statement: finance gross, service contract gross and insurance gross. Other F&I gross includes, but is not limited to, chemicals (undercoating, paint protection, fabric care, windshield protection), tire protection, Tyron, GPS, etc.
  11. Insurance Gross per Contract – I have not included a benchmark for insurance gross. This is because most of my clients do not sell insurance. Insurance is highly regulated and can be difficult to sell in many states. Many dealers have decided to focus on the multitude of other products that are easier to sell, which have better grosses.
  12. Chargebacks as a Percent of F&I Gross – Benchmark – 5.0% - The target is to keep your total finance, insurance and service contract chargebacks below 5.0 percent. Chargebacks should go against the pay plan of the F&I manager.
  13.  Retail Units per F&I Manager – Benchmark – 40 to 50 Retail Units per Month – This is a hotly discussed topic in 20 Group meetings. When do you add a second, third or fourth F&I manager? When do you add an assistant? When do you add an executive F&I manager to manage the F&I managers? This benchmark is a range to compensate for dealers that are heavily motorized (benchmark 40 retail units per month) and heavily towables (benchmark 50 retail units per month). Comparing your F&I manager to this benchmark can sometimes be a problem if your store has a great deal of seasonal fluctuations.
  14. Administration Fee per Contract – No Benchmark – In my 20 Groups, administration fees range from $0 to $488. Certain states regulate allowable administration fees. Certain dealers are very resistant to charging this fee or increasing the fee that they currently charge. In my experience, very few customers (1-2 percent) challenge this fee. These types of fees are included in virtually all large dollar purchases. My advice is to ask yourself: When was the last time you increased your administration fee? If it was years ago, go ahead and increase it now. Also, make it a hard-coded into your sales agreement.
  15. Compensation Expenses as a Percent of F&I Gross – Benchmark –10 to 12% – This is the total of commissions and salaries that are paid to F&I employees divided into the total F&I gross. F&I manager compensation plans vary widely. In reviewing my client base, compensation expenses range from 7 percent to 33 percent. The reasons for this are varied. Different parts of the country pay more for this position. Many dealers have not adjusted pay plans as this department has improved their performances over the years. In group discussions, this position is one of the easier ones to find quality personnel. F&I managers in the RV business are paid better with shorter hours than the automotive business. This makes for an easy migration of trained automotive F&I managers into the RV business.

What Are the High Performers Doing?

F&I processes are detailed very well by other writers and I will leave the details to them. However, this is what I see that the most successful F&I departments are doing:

  1. F&I menus – They are used with 100 percent of the buyers, good markups are built into the menus, product waivers must be signed and four levels of menu are presented.
  2. The F&I process starts with fully loaded payments. This means that the initial payment offered includes financing, extended warranties, tire protections, chemicals (Enviro package – undercoating, paint protection and fabric care), and insurance (if offered).
  3. F&I managers sell the benefits. For instance, to promote fabric care, the manager will use a swatch of cloth that half protected and half unprotected. In front of the customer, they will mark the swatch and pour fluids on the swatch. The customer will see that the protected half is easily cleaned and the unprotected half is permanently damaged.
  4. They are open minded to new products, such as GPS, Tyron, windshield protection products, satellites, etc.
  5. The dealers have a good measurement system for the performance of the F&I department. They measure penetrations and gross per item sold. These are compared on a monthly basis against goals and targets.
  6. They set regular targets and goals for the F&I department.
  7. They hold the F&I managers accountable for the goals. If the goals are not met, there will be consequences that range from counseling to termination.
  8. Pay plans strongly incentivize the sale of all products. The best dealers use a 100 percent commission pay plan.
  9. Ownership and sales management believe in the F&I process.
  10. The F&I managers are well-trained professionals. To keep the F&I manager informed and up to date, additional training is required every six to 12 months.
  11. The front end of the sale strongly supports with F&I end of the sales with 100 percent turnover.
  12. Sales management has part of their pay plans based on F&I gross.
  13. F&I offices should look professional. This office needs to have the feel of a bank.

Benchmarks are great for finding out where you are coming up short in a certain area. The steps to success are also helpful. The problems are implementation and follow-through. This is where the 20 Group process is invaluable. A dealer can ask questions and get feedback to make sure they are on the right track. Also, it allows a dealer to bounce ideas off their network of dealers between meetings.