May 2, 2023
Adam Hoeksema
The IRS publishes tax return data each year on the roughly 28,000,000 sole proprietorships in the U.S. We analyzed the 133,895 tax returns that were filed in the car dealership industry to pull out some key statistics and insights to help our customers ensure that they are creating realistic financial projections for their car dealership.
We hope that this data will be helpful for you as a “reality check” for your financial projections and car dealership business planning process. We hope you create a forecast for your unique situation and plan, and then use this data to make sure your projections seem reasonable based on industry averages.
Here is what we will cover in this article:
Learn How to Use this Financial Data
If you are creating projections for your startup business, or you just want to see how your existing business stacks up to industry averages, you can take your income statement and compare key ratios and percentages for your business compared to this industry average data.
How many Car Dealership businesses in the US are sole proprietorships
There are approximately 133,000 car dealership businesses in the US organized as sole proprietorships. We specifically analyzed 133,895 companies based on the 2019 IRS tax return data.
Average annual revenue for a Car Dealership
The average annual revenue for all sole proprietorship car dealership businesses in the U.S. was just $291,564.
This number seemed incredibly low to me. In fact, in our blog post How to Start a car dealership we found that the average car dealership revenue was $4 million per year and sell roughly 120 vehicles per year
So what gives?
I think we need to remember that this tax return data includes all sole proprietors that categorize themselves in the “Used car dealership”. This may include those that sell a couple cars in their front yard.
This underscores the importance of actually creating your own car dealership projections based on your potential inventory.
Average annual expenses for a Car Dealership
The average annual expenses for all sole proprietorship car dealership businesses in the U.S. was $289,606.
It should jump out to you immediately that average annual expenses for a car dealership is likely around 10 to 11 cars, assuming $25,000 per car, plus salaries, so again let’s not focus too much on the specific dollar amounts here, what we can gain from this tax return data is an understanding of expenses and profits as a percentage of revenue rather than a specific dollar amount.
Average net profit margin for a Car Dealership business
The average net profit margin for a car dealership business was 1%.
How much can I make by owning a Car Dealership business?
In order to calculate the earnings potential of a car dealership you can take the following assumptions:
- # of walk in visitors to the lot
- % close rate of visitor to car buyer
- Average sales price per car
These assumptions will allow you to come up with a revenue forecast for your car dealership. From there you can apply the 1% profit margin.
Top 9 expenses for a Car Dealership business
Based on the tax returns of roughly 130,000 sole proprietors operating in the car dealership industry, the following were the 9 largest business expenses as a percentage of revenue.
Average material costs expense for a Car Dealership business
The average car dealership business spent 78% of annual revenue on material costs.
Given that a majority of the cost is spent on inventory, this large percentage is not surprising. Used car inventory is the main driver of revenue, so it would be accurate that the majority of cost resides in this category.
