How to protect your margins in today's market
In today’s market protecting margin is a top priority for every dealer, with costs rising all around keeping as much margin as possible on each vehicle sold is essential. At Autotrader, we want to support dealers as much as possible we have several tools and strategies that can help you protect your margins. In this article we will explore…
How to implement the retail back method into your sourcing strategy
How to use retail rating to your advantage
The dangers of pricing too low
How to work retail back
We all know that the market is experiencing a supply shortage. Between 2020 and 2023, the volume of new cars entering the UK market fell by 40%¹. The pause on production during the Covid-19 lockdowns has been creeping into the market over the years, but the reduction in supply during those years has now hit the core of the used market. Which means it’s getting harder to source great stock at a great price. So how best can you navigate this supply shortage to make sure you’re not constantly fighting margin and instead turning your stock as fast as possible.
In this market it’s no longer realistic to buy a car at wholesale, add your prep costs, tack on your margin and hope that a buyer agrees on the price you’ve set. You need to start implementing a retail back strategy when it comes to sourcing. This process takes out the guesswork for dealers. Within every Autotrader package you have two tools that work together to help you implement this strategy, they both live in Portal or via API straight into your DMS.
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This tool helps you get to know a vehicle inside and out. It gives you a clear breakdown of the market by showing you accurate valuations, what competing vehicles are currenlty up for sale, and local demand metrics so you know roughly how quickly it’s likely to sell in your area.
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This tool gives you the live supply and demand conditions across your local area. You can filter by make, model, age, and fuel type to instantly spot where the unique opportunities and potential pockets on profit that live in your local area
Once you have the numbers, then you can start to do the maths, in reverse:
If the data shows the vehicle needs to go on pitch at a 99% Price Position you ask:
What is the prep actually going to cost me?
What margin do I need across it?
What’s my exit plan if it doesn’t move in 15 days?
You subtract all of that from the retail market reality, and you’ll find your non-negotiable maximum bid price.
No one can afford to get caught up in auction fever, overpaying on a vehicle because everyone else was bidding on it without having a hard stop price point, and ultimately taking a loss. The best way to source effectively is to trust the live market data, bidding with confidence, maybe buying something different you hadn’t previously thought of that’s performing well in your area, and keeping your stock turn wheel spinning? Working retail back is a great way to protect margins and make sure you can get the most value out of every vehicle on your forecourt.
How to use retail rating to your advantage
It’s important to understand that every vehicle on your forecourt is different, so why would you price them all using the same strategy?
Retail rating can help you take the guesswork out of pricing. When used correctly it can help lead you to the correct pricing band for each vehicle and help you squeeze each drop of margin possible for every vehicle you sell.
Our retail rating tool is a unique measure of how fast a car/van is likely to sell in your location. It considers several factors, including average days to sell and supply and demand to score the vehicle between 1-100. Helping you to make more data driven decisions when buying/pricing stock so you can make more profit.
Of course, retail rating is nothing without best practice, having enough images, detailed descriptions and honest reviews that give buyers a reason to choose your dealership to purchase from.
The dangers of pricing too low
Using a low pricing strategy to generate more interest seems like a good idea in theory. In this cost-of-living crisis it’s easy to assume that buyers are going onto Autotrader and filtering their search from low to high to find the cheapest car on the market. So it would make sense to price low as it’ll help you appear high when this filter is applied and you’ll be able to have that low price indicator flag. In this economy we all want to find a bargain and save as much as possible, so this must be the perfect lever to pull to attract potential buyers.
In some cases this may be true. If supply of your vehicle is high and demand is low pricing can provide an edge in a competitive market. But you need to appreciate that car buyers on certain vehicles might be more price led on certain stocand behave differently than others. For some of your vehicles having the cheapest price on Autotrader may be the best strategy to get that particular car sold. But it may also result in unnecessarily leaving money on the table all in an attempt to win that race to the bottom.
It’s important to note that lower pricing is not the lever you should be automatically pulling when you want to shift a vehicle. Your higher retail rated stock needs it’s own pricing strategy as buyers of this type of stock will behave differently and are less influenced by price. You can use the Retail Rating metric to compare different vehicles, even if they are worth different amount.
Only 1-in-5 buyers on Autotrader are filtering their search to price low to high.
80% of people never even touch this filter, most filter based on ‘Relevance”
You also don’t want to fall victim to the “Too cheap to be true” suspicion. When you price a car significantly below market value, you aren’t just losing margin, you’re actively sowing doubt into the buyer’s mind. Unless your website, your showroom, and your Google reviews are flawless, the buyer is sitting at home thinking ‘there must be something wrong with this car to be priced this low’
We are making some changes to price indicators, to reflect the need for value and trust over just chansing the low price flag. Price Indicators are exactly what they say on the tin, an indicator. They need explaining (which is something we’re working on), so if you’re hoping to give the value of your car and your business through a flag based on price, you need to rethink your strategy. If your mission is to build value, explain why your price is a touch more than the others, and why you’re the one worth buying from, and you’re probably on the right track.
At Autotrader, we’re committed to helping your business succeed, because your success is our success.
Check out our Straight Torque videos to learn more about how to beat margin preasures
Our partnerships team are on hand to help maximise visibility and get more eyes on your vehicles. You can also access our best practice guide here.
Want to talk about your goals and how to achieve them?
FAQ’s
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Not necessarily. Data shows that 80% of Autotrader buyers browse by "Relevance" rather than filtering from low-to-high price. Lowering prices unnecessarily reduces your margin without guaranteed additional views
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Potentially
Pricing significantly below market value can trigger a "too cheap to be true" reaction from potential buyers, making them suspicious about the vehicle's condition or history. Unless supported by flawless reviews and transparent descriptions, aggressive discounting can lower trust rather than increase leads.
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Instead of adding prep costs and desired margin onto a wholesale purchase price and hoping for a sale, the retail back strategy works in reverse. You start with the live market retail price for your region, then subtract your target margin, estimated prep costs, and exit strategy costs to determine your absolute maximum bid price before buying stock.
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No.
High Retail Rating stock often attracts buyers who are less price-sensitive and more focused on value, condition, and dealer trust. Low-demand stock may require a more competitive price position. Pricing every vehicle with a blanket rule risks leaving profit on the table.
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To build value that supports a higher price, ensure your advert clearly demonstrates why the car is worth more:
Highlight detailed vehicle specifications
Explain the added value included in the price, such as prep quality, fresh MOTs, and warranties.
Maintain strong, transparent Google and Autotrader reviews on your profile.
The upcoming changes to Price Indicators will help support these conversations