Floor Plan Math: When Holding for More Gross Actually Costs You Money
The conversation happens daily at every dealership:
"We've got a $28,500 offer on the unit we're asking $31,200 for. That's $1,100 under where we need to be."
"Hold it. The right buyer will come along."
Sometimes they're right. Often they're mathematically wrong, and the delay costs more than the discount would have.
The Gross Profit Illusion
Dealers fixate on gross profit per unit without factoring in the time cost of that profit. This creates expensive mistakes.
Scenario:$30,000 unit, 6.5% floor plan rate, currently 52 days old.
Offer A: Accept $28,200 offer today ($1,800 gross profit)Offer B: Hold for $29,500 offer in 18 days ($3,300 gross profit)
Most dealers choose B. Higher gross wins, right?
Let's add floor plan interest:
Offer A: $1,800 gross - $270 interest (52 days) = $1,530 netOffer B: $3,300 gross - $364 interest (70 days) = $2,936 net
Offer B is still better. But what if the "18 days" estimate is wrong?
Reality Check:
If the $29,500 buyer takes 32 days to appear instead of 18:
- Gross profit: $3,300
- Floor plan interest (84 days): $438
- Net profit: $2,862
If it takes 45 days:
- Gross profit: $3,300
- Floor plan interest (97 days): $506
- Net profit: $2,794
At 64 days of additional holding:
- Gross profit: $3,300
- Floor plan interest (116 days): $605
- Net profit: $2,695
You're now making only $1,165 more than if you'd taken the $28,200 offer on day 52—and you've tied up $30,000 in inventory for an additional 64 days.
Use a floor plan interest calculator to run these scenarios before declining offers.
The Break-Even Formula
When evaluating whether to hold for more gross, calculate your break-even timeline:
Break-Even Days = (Additional Gross Profit ÷ Daily Interest Cost)
Example: Offered $2,200 gross today, holding for $3,100 gross.
- Additional gross sought: $900
- Daily interest on unit: $7.40
- Break-even: 122 days
If the better deal takes longer than 122 additional days to materialize, you're losing money by holding.
This math changes based on the unit's current age. A 35-day-old unit has more room to wait than an 80-day-old unit.
The Aging Curve Problem
Floor plan interest doesn't hurt equally across inventory age. It accelerates in damage:
Days 1-45: Interest is manageable overhead, part of normal cost of businessDays 46-70: Interest starts meaningfully impacting deal profitability
Days 71-90: Critical zone where interest often exceeds 15-20% of grossDays 91+: Interest can exceed 30-40% of gross profit
A unit sitting 95 days at 6% has accumulated significant interest. Holding it another 30 days for $600 more gross profit means that $600 gains you only $356 after additional interest—and you've kept $28,000 tied up for a month.
The Opportunity Cost Factor
Floor plan interest is only part of the cost of holding inventory. Add opportunity cost:
If you wholesale a 75-day-old unit today and use the freed capital to acquire a fast-moving unit tomorrow, what's the profit difference?
Path A: Hold Current Unit
- Unit A: Hold 28 more days, gain $700 gross, pay $168 additional interest = $532
- Net: $532
Path B: Wholesale and Replace
- Unit A: Wholesale now, lose $400 vs retail target
- Unit B: Acquire fast-mover, sell in 18 days, gain $1,900 gross, pay $108 interest = $1,792
- Net: $1,392
Path B generates $860 more profit despite "losing" $400 on the wholesale.
The calculator at dealerdata.one helps quantify these trade-offs.
Decision Framework
Before declining an offer, answer:
- How many additional days will the better offer likely take?
- What's the additional gross profit target?
- What's the daily interest cost on this unit?
- What's the break-even timeline?
- Is this unit's age already in the danger zone (70+ days)?
If break-even timeline exceeds realistic market conditions or the unit is already aged, take the deal.
Common Mistakes
Mistake 1: Sunk Cost Thinking"We've already invested 80 days; we can't give up now."
Floor plan interest already paid is sunk cost. It's gone. Only future interest matters for today's decision.
Mistake 2: Optimism Bias
"The right buyer will come along."
Maybe. But floor plan interest compounds on certainty, not optimism. Every day you wait costs real dollars for hypothetical profit.
Mistake 3: Ignoring Velocity"We'll hold everything until we hit gross target."
Fast-moving inventory can afford to wait. Aged inventory cannot. The same decision framework doesn't apply to both.
Implementation
This week, identify all units over 60 days. For each:
- Calculate accumulated floor plan interest
- Calculate daily interest cost going forward
- Evaluate pending offers against break-even timeline
- Determine wholesale number where immediate action makes more financial sense than continued holding
For units over 75 days, bias heavily toward immediate action over optimistic holds.
The Bottom Line
Sometimes taking less gross today generates more profit than waiting for more gross tomorrow. The difference is math, not intuition.
Stop managing floor plan emotionally. Start managing it mathematically. Your bottom line will thank you.
