How much to offer on a part exchange

The algebra that works backwards from your profit target, why the VAT factor is 1.2 and not 1.0, and how to handle the moment a customer names a number you cannot meet.

Updated 1 August 2026 · 5 min read · Written for UK independent dealers

A part exchange is two transactions pretending to be one, and the reason they get muddled is that the customer only sees a single number: the difference to change. That gives you room to move, and it also gives you room to lose money without noticing.

This guide is about knowing your maximum allowance before the conversation starts.

The number you actually need

The only question that matters is: what is the most I can allow on their car and still make my money on it?

Everything else — what they owe on finance, what they think it is worth, what the internet valuation said — is context. The ceiling is set by what their car will retail for, minus what it will cost you to get it there, minus what you need to keep.

The algebra

Work backwards from the retail price of their car:

1. What will it retail for? Use sold prices for that exact specification at that mileage. Not advertised prices, not the trade guide's optimistic column.
2. What will it cost to prepare? Realistic prep, not hopeful prep.
3. What warranty reserve do you hold? Whatever your policy is.
4. What do you need to retain? After VAT.

Then:

Maximum allowance = retail − prep − warranty − (1.2 × target profit)

The 1.2 is the piece people miss. If you want to keep £1,200 after margin-scheme VAT, you need a gross margin of £1,440, because a sixth of the margin goes to HMRC. Multiplying your target by 1.2 grosses it back up.

Skip that factor and you will overpay on every single part exchange by a sixth of your target profit. On a £1,200 target that is £240 a car — quietly, consistently, forever.

Worked example

Their car will retail at £8,500. Prep £400. Warranty reserve £350. You want to keep £1,200.

• Gross margin needed: £1,200 × 1.2 = £1,440
• £8,500 − £400 − £350 − £1,440 = £6,310

That is your ceiling. Not your opening offer — your ceiling.

Opening below the ceiling

Open somewhere below it, because you need room and because the first number you say anchors everything after it.

How far below depends on how confident you are in the retail figure. On a common car with plenty of comparable sales, £200 or £300 under is reasonable. On something unusual where your retail estimate rests on three sales, open further back — your uncertainty is real and should cost the customer, not you.

When the customer names a bigger number

They will. They have been on a valuation website, and those sites are in the business of generating leads, not of being right.

Three things help.

Do not argue with their number. You will not win, and it makes the rest of the conversation adversarial. Acknowledge it and change the subject to evidence.

Show what similar cars actually sold for. Not what they are advertised at — what they sold for. Most customers have only ever seen asking prices, and the gap surprises them. This is the single most effective move available, and it works because it is true.

Move to the difference to change. The customer's real question is what it costs them to swap. If you cannot move on their car, you may be able to move on yours — and the same £300 given as a discount on your retail unit costs you less than £300 given as allowance, because it comes off a margin that was going to be taxed anyway.

That last point is worth understanding properly. £300 more allowance is £300 straight off your buying position on their car. £300 off your own car's price costs you £250 retained, because the VAT relief comes with it. If you must give something, give it on the side where the sixth works for you.

What can move the ceiling

Their car sells faster than average. A genuinely liquid car turning in three weeks is worth stretching for, because your capital is back quickly. A slow car at the same margin is a worse deal.

You have a buyer already. If someone has asked for that exact car, the retail figure is more certain and the holding period is near zero.

It fits your forecourt. A car in your normal price band, from a make you know, that your usual customers buy, is worth more to you than the same car in a segment you never touch — where your retail estimate is weaker and your buyers do not exist.

What should shrink it

You will not retail it. If the car is too old, too high-mileage, or simply not what you sell, you are not valuing it at retail — you are valuing it at trade. Work backwards from what a trade buyer will pay you, not from a forecourt price you will never achieve.

Thin market data. If you can find only two comparable sales, your retail estimate is a guess wearing a suit. Lean conservative.

Anything you cannot see. No service history, no second key, unexplained gaps in the MOT record. These are costs and they are also reasons a buyer will negotiate you down later.

Wrong season. A convertible in October will take longer, and that has a cost even though it does not change the eventual price.

The non-runner and the write-off

Two cases where the normal maths does not apply.

Category-marked cars. A recorded insurance total loss retails for materially less and to a much smaller pool of buyers, whatever its condition. If you take one at all, take it at trade money.

Non-runners and unknown mechanical faults. Do not guess. A quote for the work, or a trade price, or you do not take it. "It just needs a sensor" is the most expensive sentence in the trade.

Writing it down

The discipline that separates dealers who make money on part exchanges from those who think they do is recording the numbers at the point of the deal.

Record what you allowed, what you spent preparing it, and what it eventually sold for. Not an estimate — the actual figures. Within a dozen cars you will know whether your retail estimates run optimistic, whether your prep budgets are realistic, and which segments you are consistently good and bad at.

Almost every dealer believes they make money on part exchanges. The ones who have written it down know.