This can have a huge impact on cash flow. If the turn rate is too low, it may indicate poor stocking or return policies. If you can maintain a 30% GM with a three-times turn rate, it can have a major impact. In all three examples, we had $50 invested, however, the higher turn allowed us to convert the investment into revenue to increase profitability and cash flow. How does parts turn impact profitability and cash flow? We recommend dealers use categories or separate financial “warehouses” to track mainline parts from shortline or to separate attachments and portable power equipment items that may be sold through your parts department. Some individual parts may have an extremely high turn while others will not. Seasonal items, such as planting or harvest parts, may have high turnover rates at certain times of the year while maintenance items, such as filters, may be sold 12 months of the year. Put another way, the dealer has turned the $1,000,000 asset 2.5 times on a 12-month basis. All parts turnover rate looks at the total department sales on a rolling 12 months (R12) compared to the average R12 inventory.Ĭalculation: R12 parts sales at cost divided by R12 average monthly inventory.Įxample: If a dealer sold $2,500,000 worth of parts at cost and had $1,000,000 R12 average monthly inventory at cost: $2,500,000 / $1,000,000 = 2.5 times turn. In a parts department, it measures the efficiency of the parts manager to turn the parts inventory into sales revenue.ĭue to the seasonality of our industry, we often break the parts inventory into categories. Turnover rate is a financial ratio that measures the efficiency of a dealership’s use of its assets to generate sales revenue. While many dealers focus on top-line sales and gross margins, turnover rates and the impact it has on profitability and cash flow are often misunderstood or overlooked.
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