Dealers look at many metrics to gauge their business' performance. In the F&I department, the metric that gets the most attention is profit per vehicle retail.
But it seems the focus is always on how to increase that profit without really thinking about how the higher profit per vehicle retail is achieved.
I believe how you achieve it can be as important as how much of it you get.
Would you rather sell a prepaid maintenance contract or an appearance protection product? The profit margin on appearance protection may be higher, but a prepaid maintenance contract sets up your dealership to have a long-term relationship with that customer, which results in more service dollars and potentially another vehicle sale.
What is that customer relationship worth?
Is building customer relationships part of your F&I strategy, or is your only strategy to increase profit per vehicle retail?
A major obstacle to selling products with more long-term profitability is pay plans.
Most F&I managers are incentivized to sell products with high profit margins, such as appearance products, so naturally those are prioritized.
Another consideration when the sole focus is raising profit per vehicle retail is that it's tempting to raise prices.
But as prices increase, product penetration decreases. As a result, you've reached your profit per vehicle retail goal but haven't sold as many contracts, which means fewer long-term relationships and lower future profits.