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Key Takeaways
- The total estimated monthly operating cost for the dealership, excluding inventory acquisition, averages $433,147, driven primarily by variable sales expenses.
- Non-negotiable fixed overhead starts at $75,000 monthly, supplemented by $69,584 in base payroll for 11 full-time employees.
- A critical working capital buffer of at least $948,000 is required to manage initial operations and cover fixed costs before revenue streams stabilize.
- Maintaining tight control over the largest variable costs, projected at $288,563 monthly, is essential to achieving the model's rapid breakeven forecast in January 2026.
Running Cost 1 : Facility Lease/Mortgage
Lease Cost Verification
Your facility cost is the single largest fixed expense at $45,000 monthly. You must immediately confirm if this figure already bundles property taxes. If it doesn't, those taxes are likely covered within the separate $7,500 Insurance & Property Tax budget line, creating a potential double-count risk.
Fixed Facility Spend
This $45,000 monthly payment anchors your fixed overhead, dwarfing the $69,584 base payroll for 11 FTEs. You need the signed lease agreement or mortgage documents to verify the base rent component. Missing this detail makes accurate break-even analysis impossible, so get that paperwork today.
- Lease/Mortgage: $45,000/month.
- Property Tax check needed.
- Covers large physical footprint.
Managing Real Estate Risk
Real estate costs for a dealership are sticky; reducing them post-signing is tough. Avoid common mistakes like signing a lease longer than your initial capital runway allows. If you're leasing, ensure options to sublease are clearly defined in the agreement, just in case.
- Verify lease term length.
- Confirm tax pass-through clauses.
- Subleasing rights are key.
Tax Overlap Alert
If the $45,000 lease includes property taxes, but you are also budgeting $7,500 for property taxes, you are overstating fixed costs by $7,500 monthly. This error inflates your break-even point significantly, potentially hiding profitability. That’s a defintely costly oversight.
Running Cost 2 : Base Payroll Expenses
Fixed Staff Costs
Your $69,584 monthly base payroll for 11 full-time employees (FTEs) in 2026 is the second-largest fixed operating cost. This figure covers salaries only; it does not include the highly variable sales commissions, which are projected separately at $45,563 monthly. This fixed staff commitment must be covered monthly regardless of vehicle sales volume.
Staffing Inputs
This $69,584 estimate anchors your operational stability, representing the cost to keep 11 essential staff employed. This number is calculated based on the planned 2026 headcount and average salaries, excluding variable sales incentives. It sits behind the $45,000 facility lease but ahead of Insurance & Property Tax ($7,500).
- Headcount: 11 FTEs.
- Monthly Cost: $69,584.
- Excludes: Sales commissions.
Managing Salary Spend
Because base salaries are fixed, you can't cut them easily once hired. The key risk is overstaffing before sales volume justifies the 11 FTEs. Focus on keeping the initial headcount lean, perhaps starting with 9 or 10 staff until you defintely exceed the required sales targets to cover overhead.
- Phase hiring based on sales milestones.
- Use contractors for specialized, short-term needs.
- Ensure non-sales staff are cross-trained.
Fixed Cost Pressure
The $69,584 payroll, combined with the $45,000 lease, sets a very high floor for monthly operating expenses that must be cleared by vehicle gross profit alone. You need significant sales volume just to cover these two items before factoring in variable costs like reconditioning or commissions.
Running Cost 3 : Sales Commissions & Bonuses
Commission Exposure
Sales commissions represent a significant variable cost, projected at 30% of total revenue in 2026. Based on the $182M revenue forecast, this expense hits $45,563 monthly. This high percentage means commission expense scales immediately with sales volume, demanding tight control over sales efficiency.
Commission Calculation
This $45,563 monthly cost is purely variable, unlike the $69,584 base payroll. To estimate this, you must confirm the 30% rate against the actual gross revenue generated across all streams. This cost must be modeled monthly, not just annually, to understand cash flow impact when sales fluctuate.
- Revenue forecast accuracy.
- Agreed commission rate (30%).
- Total monthly revenue volume.
Controlling Variable Pay
If you are paying 30% in commissions, you have very little margin buffer left over for other variables like the 20% reconditioning cost. Focus incentives on gross profit per deal, not just unit sales volume. Avoid structures that reward low-margin transactions just to hit a top-line number.
- Tie bonuses to gross profit.
- Review the 30% benchmark.
- Watch for incentive creep.
Margin Pressure Point
A 30% variable cost is aggressive in this sector. If revenue falls short of the $182M target, this high commission load will quickly destroy contribution margin. You defintely need clear triggers to adjust this rate downward if sales performance lags.
Running Cost 4 : Insurance & Property Tax
Mandatory Fixed Costs
You must set aside $7,500 monthly for non-negotiable operating requirements. This covers dealer liability insurance, floor plan coverage, and local property taxes, running whether you sell zero cars or one hundred. This is your baseline monthly obligation before anything else.
Insurance and Tax Breakdown
This $7,500 estimate bundles three distinct, mandatory obligations. Dealer liability protects against customer claims, while floor plan insurance secures the inventory financed by lenders. Property tax is based on the assessed value of your real estate and inventory holdings; confirm the local assessment schedule now.
- Dealer liability coverage
- Floor plan insurance for inventory
- Local property tax assessment
Managing Fixed Obligations
You can't eliminate these costs, but you can control the variables. Shop insurance carriers annually to capture better rates on liability and floor plan coverage; defintely shop around. For property tax, ensure your inventory valuation methods align exactly with local assessor requirements to avoid over-assessment.
- Shop insurance quotes yearly
- Verify property tax valuation
- Bundle policies if possible
The Break-Even Anchor
Because this $7,500 is paid every month, it directly sets your minimum sales threshold before payroll hits. This fixed cost must be covered before any variable costs, like reconditioning (projected at $30,375 monthly based on revenue), start impacting your cash flow.
Running Cost 5 : Reconditioning & Prep Costs
Prep Cost Budget
Vehicle reconditioning and preparation is a significant variable cost you must actively manage. For 2026 projections, budget 20% of total revenue to cover cleaning, minor repairs, and final checks on every unit sold. This translates to roughly $30,375 monthly spent just to get cars showroom-ready. Quality control here directly impacts customer satisfaction.
Prep Cost Drivers
This expense covers detailing, fluid checks, and minor cosmetic fixes needed before delivery. Since it scales with sales, your input is total projected revenue multiplied by the 20% factor. It sits alongside Sales Commissions as the largest variable operational drain. Don't confuse this with warranty costs, which are separate.
- Total Revenue Ă— 20% factor
- Crucial for CPO readiness
- Calculate based on projected sales volume
Controlling Prep Spend
Controlling this cost hinges on the quality of your trade-ins or auction buys. If you buy cleaner inventory, reconditioning costs drop defintely. Negotiate fixed rates with your detailing shop rather than paying hourly. A tight inspection process prevents overspending on unnecessary fixes.
- Vet trade-ins harder
- Lock in fixed-rate detailing contracts
- Benchmark prep spend against peers
Margin Protection
Missing this 20% allocation means your gross profit margin calculation will be wrong from day one. If prep runs high, say 25%, that extra 5% directly erodes profit on every vehicle sold. This isn't optional overhead; it's baked into the cost of goods sold for retail.
Running Cost 6 : DMS & CRM Software
Mandate Software Spend
You must budget $3,500 monthly for your Dealership Management System (DMS) and Customer Relationship Management (CRM). These systems are the backbone for tracking inventory, managing finance and insurance (F&I) paperwork, and meeting state regulatory compliance requirements. Skip this, and operational chaos is defintely guaranteed.
Software Budget Fit
This $3,500 covers essential software licenses for managing new vehicle inventory, sales leads, and mandated transaction recording. It's a fixed operational cost, small compared to the $45,000 lease or $69,584 base payroll. You need quotes from vendors to finalize this number before launch.
- Fixed cost, not variable
- Essential for audit trails
- Less than 1% of projected payroll
Taming Software Fees
Since DMS/CRM is required for compliance, cutting the core fee is risky. Focus instead on minimizing add-on modules you don't use, like advanced telematics integration if you aren't using those features yet. Avoid long-term contracts until you confirm system adoption by your 11 FTEs.
- Negotiate implementation fees
- Audit unused features quarterly
- Standardize user training
Integration Over Price
If your chosen DMS doesn't integrate well with your F&I software or accounting ledger, efficiency gains vanish fast. Poor data flow forces manual reconciliation, which defeats the entire purpose of paying for integrated systems in the first place. This is a technology integration risk you must address early.
Running Cost 7 : Utilities & Maintenance
Facility Upkeep
Utilities and maintenance are fixed overhead tied directly to the physical footprint of the dealership. This combined cost hits $8,000 monthly, split between $5,000 for utilities and $3,000 for security/maintenance. This is a non-negotiable baseline expense you must cover before selling a single car.
Footprint Overhead
This $8,000 monthly charge covers the operational upkeep for the large showroom and service area. Inputs rely on square footage estimates and local security contracts. For startup budgeting, this cost must be secured for at least six months of runway, separate from the $45,000 lease payment.
Cutting Facility Drag
Managing facility costs means optimizing energy use across the large footprint. Since maintenance is fixed at $3,000, focus on utility reduction. Negotiate energy supply rates or invest in smart HVAC controls for the showroom. A 10% utility saving nets $500 monthly back to contribution margin.
Fixed Cost Context
Honestly, $8,000 in utilities and maintenance is relatively low compared to the $45,000 lease payment. The risk here isn't the $8k itself, but ensuring the physical space is utilized efficiently to support the 11 FTEs on base payroll. Don't defintely overlook the impact of climate control on customer comfort.
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Frequently Asked Questions
The Facility Lease/Mortgage is the largest fixed expense at $45,000 per month This cost, combined with Insurance and Property Tax ($7,500), dominates the non-payroll fixed overhead