There’s a high cost to running a dealership, and closing the gap between overhead costs and sales isn’t easy. Hitting your revenue goals on the fixed ops side of the dealership can be tricky, especially in today’s day and age. However, if you want to increase your absorption rate, it’s absolutely necessary. Online retailing is now the most popular way to shop, and your customers aren’t looking back. This means that your dealership absorption rate relies more on online sales than ever before. 

How to Calculate Your Absorption Rate

To calculate the absorption rate at a dealership, you need to determine the proportion of the dealership’s total operating expenses covered by the gross profit generated from fixed operations, which include the parts and service departments. 

Step 1: Determine the gross profit from fixed operations by adding the gross profit generated by the parts and service departments.

Gross Profit (Fixed Operations) = Gross Profit (Parts) + Gross Profit (Service)

Step 2: Calculate the dealership’s total operating expenses by adding up salaries, rent, utilities, marketing, and other costs associated with running the dealership.

Total Operating Expenses = Sum operating costs

Step 3: Calculate the absorption rate by dividing the gross profit from fixed operations by the total operating expenses. Then multiply by 100 to get the percentage.

Absorption Rate (%) = (Gross Profit (Fixed Operations) / Total Operating Expenses) x 100

A higher absorption rate indicates that the dealership relies less on vehicle sales to cover its expenses, providing a more stable financial position. It’s essential for dealerships to monitor their absorption rate regularly, as it can reveal the effectiveness of their fixed operations and help them make informed decisions about cost management, pricing, and overall business strategy.

What can you do to drive more revenue in your fixed ops department? Here are five eCommerce strategies to help you boost your absorption rate.