In simpler terms, front gross is the difference between the selling price of the vehicle and the cost of the vehicle to the dealership. It includes the profit made from the sale price over the invoice price paid to the manufacturer, as well as any dealer-added options or fees.
Here’s a breakdown of what front gross typically includes:
- Sale Price: The price at which the vehicle is sold to the customer.
- Dealer Cost: The cost the dealership paid for the vehicle, often including the invoice price and any additional costs incurred to prepare the vehicle for sale.
Example Front Gross Calculation:
- Selling Price of the Vehicle: $25,000
- Dealer Cost: $22,000
- Front Gross Profit: $25,000 (Selling Price) - $22,000 (Dealer Cost) = $3,000
The front gross is a critical metric for dealerships as it directly impacts their profitability from vehicle sales. It is used to calculate sales commissions and bonuses for the sales staff, who typically earn a percentage of the front gross profit on each vehicle sold.
Importance of Front Gross in Pay Plans:
Sales commissions are often a percentage of the front gross. For instance, if a salesperson's commission rate is 10% of the front gross and the front gross on a vehicle is $3,000, the salesperson earns $300 for that sale.
Front Gross, commissions, who cares?!
By understanding front gross, both Accounting Leadership and Salespeople can better structure their sales strategies and compensation plans to incentivize higher profitability on vehicle sales.
