Most sales managers tend to approach budgeting simply by looking at the unit and bottom line figures.  Here, Brian looks at a different approach – one which he implemented at a dealership towards the end of last year.

Starting point

 I started my projections by looking at how many units were sold in each month of the previous year, and then converted each monthly total into a percentage of the total (alternatively, you could take the average monthly sales over the past three years, to iron out the effects of any special promotions or market anomalies).  I was working on the basis that those monthly percentages were unlikely to be significantly different in the year ahead (although the number of sales might be).

Next, I took the 2015 sales targets (2300 new and used retail units) and broke that down into 12 monthly targets, based on the previous year’s percentages. From that I was able to work out how many prospects the dealership would need to talk to (based on a 20% closing ratio, which I believe is the industry average – in the Digital sales age your sales team may well be closing 25%-30% of the prospects they talk to to achieve the required level of sales each month as customers are better informed than ever before.

Staffing levels

 From this you can calculate how many salespeople you actually need to do the job, and whether you currently have enough or too many. In this example, the dealership currently has 8 salespeople.  They will require an extra two to meet the January target, two more in February, and a further one in March. By the time April comes around you might think the sales department will be over-staffed, but of course you have to remember that, one, there will be a degree of staff turnover and, two, you also have to cover holiday and sickness as well. The projections are based on each salesperson delivering 180 units per year.

Test drives


Having determined that the sales team needs to speak to 1,200 prospects in January, it follows that they will need to give 600 of them a test drive. Again, that is based on standard industry figures – for every ten prospects you demonstrate to, you should sell four cars.  So, for example, in January 600 demonstrations should lead to 240 sales.

 Customer follow-up

 Similarly, with customer follow-up, experience suggests that each prospect who leaves the showroom without buying a car needs to be contacted three times to maximize your chances of converting them into a sale. The first follow-up is usually to thank them for visiting the dealership, and to establish if there are any other ways in which we can help them.  That contact, whether it is by phone (preferably), a handwritten note, an email or a text, should be made within 24 hours of their visit to the dealership, unless they have visited on a Saturday in which case Monday is the best time to re-contact them – Sunday is a bit too intrusive in my mind. The second might be some additional information and an offer of a second demonstration to help the prospect make a decision. The third should be to establish the next course of action.


If you are doing three follow-up contacts per prospect, then you are working pretty hard.  If 360 follow-ups are required per salesperson during January – that’s around 15 for every working day of the month. 15 call-backs per day is basically two hours work on the phone, which is probably as much as a salesperson can productively manage, bearing in mind that most of them are probably doing a delivery a day as well.  So, any more than that and you are probably going to have to give your sales team some extra support

That is the trouble with most budgets – we tend to budget for results when what we should also be budgeting for is the salesperson’s activity levels.If you want your salespeople to be effective, then you simply have to budget for their time to follow-up prospects.  If you don’t, you will probably find that your team is not big enough and inevitably they will reduce the number of follow-up calls they make.  This in turn will reduce their effectiveness and your sales.

Does it stack up?

 The next stage is checking to see if this all stacks up as a budget.  This year, in our example, we required 24 unit sales per salesperson per month on average.  Last year it was 22. So the question is, can we expect to get an 8% increase out of our sales team?  In this particular case the answer was most certainly yes, since we were working with a more experienced sales team now.

Also as a cross-check, last year the average per salesperson was 19 units and we managed to raise that to 22.

F&I potential

 On a 50% finance penetration in January, the dealership would sell 120 cars on finance and get $174,000 in finance commission.  But if they could just raise that penetration to 60% they would sell 144 cars on finance and bring in $208,800. If an extra 10% penetration means an extra $420,000 profit over the course of the year, you have to ask if it would not be worth considering investing some of that money in an additional business manager to ensure we get that extra revenue?  Or, it might mean looking again at the way in which we sell finance to try and maximize the potential.

Use actual results

 My first attempt at the budget, was done using only the dealership averages.  My cross check was done on actual results, which means I am now developing a budget that is based on each of the salespeople’s real activities in previous years.  It’s a much more accurate way of looking at whether or not we can achieve our budget.

First we look at what the individual salespeople should be able to contribute during the new year in terms of units, and at what activity levels are required.  Here we are working on the basis that for every two demos you do you will sell one car.

When we come to look at F&I, we see that if they continue this year as they did last year then they should be able to bring in $2.4m of F&I commission, which is in line with our projection.  It means we are going to have to do something with finance if we want to raise it $1.4m.

So this now becomes a very good check against the original activity-based budget.  If that came in at $1.9m, for example, we’d have to do something radical with finance.  But as we are in the ball park in this example then we can be confident that there is definitely an extra $0.5m up for grabs.

 Excel (email us for the attachment)

The beauty of developing your budget on an Excel spreadsheet is that you can interrogate it to ask ‘what if?’  for example, our example  spreadsheet shows 1,000 new and used units.  Replace that with, say, 550 and all the other figures will change accordingly.

Looking across the top of spreadsheet, sales turnover is based on average selling price.  If you changed the average selling price from $20,500 to $25,500 the figures would change again.

 You can use this to get a feel for the volume of sales you think you are going to do, which will be important to you in terms of identifying cash flow and for making your cash flow projections.  Say you have 50% finance penetration, 60% trade-ins and you sell a car for $25,500.  For three days you will have outstanding, say, $18,000 worth of finance and you might also have a trade-in that is tying up your cash.

Final point

Most dealerships will only do a result based budget (which is much better than doing no budget at all).  They don’t tend to think through what their salespeople are going to have to do to get there.  And there’s no cross-checking. Dealerships need to look at carefully at what they have done this year before they start budgeting for that % increase next year.