The End of Market Days Supply: Why MDS is Outdated and What You Should Use Instead
As another baseball season enters the history books, it’s interesting to reflect on how our methods of measuring players’ success have changed. For decades, people would talk about how a player’s batting average was their ticket to a place in the Hall of Fame. But with today’s sabermetrics, teams now can evaluate players in ways we’d never before thought possible.
Winning teams have figured out how to turn this data into championships. In the same way, it’s time for car dealers to up their statistical game by replacing Market Days Supply (MDS) with more in-depth metrics.
With new, more informative data at their fingertips, dealers can transition from small competitors to become national leaders.
Why Market Day Supply Doesn’t Work
DealerCue’s pricing and appraisal tool, VinCue, regularly analyzes five years of data on 40,000 dealerships around the country. Our analysis confirms what we suspected all along: MDS doesn’t work.
In baseball, a player’s batting average is a simple calculation: divide the number of hits by the times at-bat. Higher the batting average, the “better” the player.
Batting Average = Hits ÷ At Bats
In the same way, MDS is calculated by dividing market quantity of a given vehicle by the daily sales rate (usually calculated over the last 45 days). An MDS of 30-45 days is considered “the sweet spot”.
MDS = Market Quantity of a Vehicle ÷ Daily Sales Rate
The problem is that neither tells you what you actually want to know—what it takes to win.
Batting averages don’t include a sacrifice fly. They don’t tell you how competitive a player’s opponents were. A player’s average says nothing about the number of runs they scored or the games their team won. Despite all of this, batting averages are used to predict a player’s future performance.
MDS is supposed to tell you how quickly a vehicle is moving, but it fails to consider a variety of factors. It’s simply a snapshot in time, not an accurate predictor of future sales. For example, MDS doesn’t tell you if Enterprise suddenly flooded the used SUV market with 50 Ford Explorers, or that one dealer is controlling nearly all of an area’s inventory of pre-owned Honda Ridgelines.
It’s time to give up on MDS and start collecting the information that matters to your dealership by analyzing these four key metrics:
1. Your Brand or Niche
Studies have shown that companies with strong brands sell more. They also charge more— up to 14%! In fact, having a strong brand can have a bigger impact on your sales than product availability and promotions.
Having a brand means being known for something. You could be known for Certified Pre-Owned (CPO) foreign cars, family vehicles, or having the best warranty in town. By sticking to your brand, you build trust with your target audience. They know who you are and know what to expect.
Resist the temptation to acquire inventory just because it’s available at a decent price. Instead, look deeper at your sales data. Identify your best-selling vehicles, or the promotions that are most profitable, and stick to that niche.
2. Your Ideal Customer
Rather than attempting to cater to everyone who walks into the showroom, define your ideal customer with the same precision you use to identify your brand. Ask:
- Who is our ideal customer?
- Will this vehicle attract our ideal customer?
- What do our customers expect out of their car-buying experience?
To get a more complete picture of your customers, think about them over the entire sales lifecycle. You want to know what vehicles bring them into the showroom, but that’s just the start. Consider how your ideal customers pay for a vehicle—do they finance or pay a big chunk up front? Do they bring in quality vehicles for trade-in?
Don’t think that your relationship with your customers ends when they drive off the lot. Ask yourself what it will take for them to come back for service and future sales.
3. Top Selling Vehicles
Don’t limit your data analysis to your customers. You should also study what your team sells best. Do this by identifying the three most valuable types of vehicles in your inventory. Those are:
- Your highest-grossing vehicles.
- The best finance opportunity vehicles.
- The vehicles your top performers excel in.
With this data as your guide, you should be able to create the ideal mix of inventory your sales team can work with.
It’s important to be selective when obtaining new inventory. It’s why many high-end retailers now talk about “curating” their stock. When they do so, they’re signaling that they only carry inventory that best suits them and their customers.
Selection is more than turning volume. It’s about building your brand.
When you have inventory that doesn’t fit your brand, you lose the trust of your audience because they no longer know what to expect from you. This only makes the job of your sales team harder.
4. Zip Code-Level Marketing
Once you’ve identified your brand, ideal customer, and top-selling vehicles, you can use that information to strategically target new customers.
In our analysis of 40,000 dealers, we compared the performance of those dealers who used a shotgun marketing approach with those who adopted a sniper ad strategy. We discovered that the sniper ad strategy—what we call Zip Code-Level Marketing—always comes out on top.
Don’t waste time and money competing for your customers’ attention (for instance, by using third-party lead providers). Instead, identify where your customers are and go after them. This way, you’re showing them the exact vehicle they might want.
Winning in the New Marketplace Requires New Metrics
Depending on MDS alone doesn’t work in today’s market. Instead, you need to be smart about the vehicles that you stock and sell. MDS—with its distorted, simple snapshots in time—has quickly become irrelevant.
The good news is that you have better options, and you don’t need to wait until next year for fortune to turn your way.
When we analyzed our dealer data, we realized there really aren’t many top performers nationwide. Most are stuck in the cellar, and they’re competing against daily sales numbers that don’t help them play the long game.
Top-performing dealers already understand and utilize these new metrics. They have a strong brand. They shape their inventory to capitalize on their brand’s reputation. They find their customers, rather than wait for the customers to find them.
VinCue and AdCue can help you find and track these next-level metrics to reach a new level of success. If you’re ready to turn your dealership into a championship, contact us for a demo today.