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Average Cost to Market

Average Cost to Market refers to the total expenses a dealership incurs to prepare a used vehicle for resale, divided by the number of cars sold. It includes all reconditioning, repair, detailing, advertising, and holding costs necessary to make a vehicle ready and appealing for retail. This metric is crucial for understanding dealership efficiency and profitability, especially in the used car sector. 

By analyzing the average cost to market, dealerships can make informed decisions about inventory sourcing, pricing strategy, vendor contracts, and reconditioning speed. This key performance indicator (KPI) is used to balance profitability with customer satisfaction.

What Does It Include?  

The Average Cost to Market encompasses all variable and fixed costs that go into preparing and marketing a vehicle. Common elements include:

  • Inspection and Diagnosis: Labor costs for initial vehicle inspection and diagnostics.
  • Mechanical Repairs: Engine, brakes, tires, and other functional repairs necessary to meet safety or quality standards.
  • Cosmetic Reconditioning: Paint touch-ups, dent removal, interior cleaning, and detailing.
  • Parts Replacement: Batteries, filters, belts, lights, and other consumables.
  • Advertising and Listing Fees: Cost of listing the vehicle on third-party platforms like Autotrader, Cars.com, or Facebook Marketplace.
  • Photography and Merchandising: Expenses related to professional photos, 360° views, or videos. 
  • Lot Preparation: Stickers, signage, and any physical setup done on the dealership lot.
  • Holding Costs: The cost of keeping a car in inventory, including depreciation and interest if financed.

Each dealership may define its cost structure slightly differently, but the core purpose is the same: to understand how much is being invested to bring each vehicle to market. 

Importance of Average Cost to Market 

Understanding your average market cost is critical to maintaining healthy profit margins and optimizing your reconditioning and sales processes.

  • Profit Management: A high market cost can undermine gross profit per vehicle. Knowing your average helps set a minimum sale price threshold.
  • Inventory Control: Helps determine which vehicles are worth buying at auction or trade-in based on expected recon costs. 
  • Operational Efficiency: Identifies inefficiencies in reconditioning time, vendor pricing, or internal processes that may drive up costs.
  • Benchmarking: Allows dealers to compare their cost-to-market performance with industry standards or other stores within a dealer group.

Example Calculation  

Let’s say a dealership prepares 10 vehicles in a month and incurs the following total reconditioning and marketing costs:

  • Total repair and detailing costs: $8,000
  • Photography and listing fees: $2,000
  • Lot prep and signage: $500
  • Holding costs: $1,500

Total Cost = $12,000

Number of Vehicles = 10

Average Cost to Market = $12,000 ÷ 10 = $1,200 per vehicle  

If the dealer aims to make a gross profit of $2,500 per vehicle, then knowing the $1,200 cost to market helps establish a viable pricing floor.

Reducing Average Cost to Market 

Dealerships constantly seek to optimize this metric. Here are a few ways to reduce it:

  • Negotiate Vendor Contracts: Work with reconditioning vendors to establish volume discounts or bundled services.
  • Improve Reconditioning Workflow: Faster turnarounds mean lower holding costs and quicker time to market.
  • Use In-House Resources: Training staff to perform more tasks internally can reduce outsourcing costs.
  • Standardize Reconditioning Packages: A consistent recon strategy based on vehicle type can avoid unnecessary expenses.
  • Utilize Technology: Resources like inventory management software and automated photo solutions can lower listing and merchandising costs.

Major Considerations

While reducing cost is essential, it should never come at the expense of quality or customer trust. Selling poorly reconditioned vehicles may result in returns, negative reviews, or warranty claims, all of which cost more in the long run.

Dealers must balance spending wisely to make vehicles retail-ready while protecting gross margins and brand reputation. 

Understand and optimize your Average Cost to Market with ATN’s expert training and consulting. Equip your team to balance pricing strategies and maximize profitability effectively.

Reach out now to start improving your market approach.