Operator: The next question comes from Adam Jonas with Morgan Stanley.
Adam Jonas : So the company is getting more profitable the smaller it gets. At some point, this will need to change. I hear you on the guidance that — I was going to ask is 80,000 units a quarter the right size for the company? You’re telling us it’s going to get — continue to get a little smaller, I would imagine, with the lower levels of merchandising and then the lower ad spend, too, are remaining there. So I guess I’m wondering, are we there yet? What is the right size for the company? And then I have a follow-up.
Ernie Garcia : Sure. So I mean to jump to the end, I think the right size for the company is much, much larger eventually. And I think the path there through profitability has just included some of these moves that we’ve made to shrink inventory and shrink marketing and get back in balance. I think where we found ourselves after 2021 was expecting another similar year and just being pretty dramatically out of balance with where sales actually were. And I think as we were growing from when we launched in 2013, all the way through 2021, we benefited a lot from the positive feedback in the business. As we got bigger, we got better. As we grew our inventory, conversion rates went up. As we spent more on marketing, it was easier to open new markets.
And I think when we kind of found ourselves out of balance and we needed to rebalance the business, we knew that we were going to face the other side of that feedback. We knew that as we shrunk, we see conversion rates go down. We knew that was going to be a difficult transition. But in light of the environment, we also thought it was the fastest path to meaningful positive cash flow. And so we took that path, and I think we remain on it. I think we believe that we are probably pretty close to where sales will bottom out. I think we’ll learn more on that over the coming quarters. We’ve obviously made dramatic moves. I gave the numbers to Sharon a moment ago about how quickly we’ve lowered advertising inventory just in the last quarter. And so I think some of those things can have some lag effects that will show up over the next couple of quarters.
So I don’t want to act overconfident that we know exactly what will happen there. But I think the major headwinds that have faced the business over the year are largely subsiding. There’s clearly been some industry and macroeconomic headwinds in the form of cost. There’s been macroeconomic headwinds in the form of interest rates. And then there’s been a lot of carve-on and post headwinds in the form of inventory reduction and marketing reduction and focusing on profitability and pulling away from sales that were less profitable and implementing different product changes that we think make the business more efficient. And so I think that’s undoubtedly been a difficult transition. It’s hard to know exactly what the impact of all of those things are on volume.
But doing the best job that we can and trying to control for all those, we do believe that the business is performing better than we might have imagined once we’ve made those moves. We have estimates for the elasticity of sales to inventory size and the marketing dollars and to many of our different product changes. And I think based on what we’re seeing, we’re actually pretty happy with where volumes are. I think the third step of our plan, when we get there, is going to be to turn back to growth. And that’s something that we clearly know how to do. It’s something we’re clearly incredibly well positioned for. I think we’ll be better positioned for it than ever before. When we’re a more efficient business, it means that growth comes easier.
When we’re — when we’ve got the infrastructure, we’ve been able to acquire over the last 1.5 years, we’re going to be in a better position to grow, but I think that’s step 3 in our plan. So we’re looking forward to Q2. Where we plan to hit step 1, we’ll stay focused in that same direction. We’ve already got our plans for the next 9 to 12 months to keep the pedal down and keep making a lot of progress in unit economics. We plan to do that at somewhat similar volumes to where we are today. And then when we get there, hit that goal, we’re going to definitely turn our attention back to growth because we’re still incredibly small compared to this huge opportunity. It is still a 40 million unit market. We still have an incredibly unique offering and, it’s still an offering that customers love.
Adam Jonas : Just a follow-up. I’m curious where you — where your team sees the lowest-hanging fruit from here on the SG&A. And has your team given consideration to charging a delivery fee or somehow incentivizing the customer either paying or avoiding a delivery cost to you?
Ernie Garcia : Sure. Yes. So let me start with, I think where we’ve made the most progress in costs over the last year, we’ve made a lot of progress, and so I apologize for filling these numbers around over and over again, but we’re proud of them. We’ve cut $1 billion of cost out of the business and over $100 million quarter-over-quarter. I think there are many areas of costs. There’s kind of fixed costs. There’s variable costs. There’s semi-fixed costs, and then there’s customer acquisition costs. In the variable costs, I think we are currently operating across virtually all of our operating groups at all-time best efficiencies. In the variable costs themselves, I think we’re generally at or near all-time lows across all groups.
And I think that’s happening despite input costs being higher. Generally, the efficiency for all of our groups is better than it’s ever been. And then in some groups, the costs are still in a similar place where they’ve been in the past because the input costs are higher, whether that’s gas or there’s been inflation just across the economy. So there are some areas where they’re somewhat similar. But I think we’ve made a tremendous amount of progress, and I think there’s more progress to be made in those variable costs. In kind of the semi-fixed costs, I think that’s actually been the biggest bucket over the last year. That’s when we were just built for a different level of volume than we saw. And I think we’ve made a ton of progress there, and that’s been extremely helpful.
I think there’s still some room for us to make progress and get all the way in balance there, but I think most of that has been achieved. In customer acquisition costs, we are all-time lows. I gave the stat. At the company level, it’s about $700 oldest cohort. It’s in the low 300s. We have four cohorts that are better than company average. Those are pretty great numbers. Those are numbers that are — in alignment, the low 300 numbers in alignment with best-in-class peers in the industry, and it’s in line with our long-term financial model. So I think over time, there’s room there, but I think that we’ve clearly proven that we can do much better than we ever have in the past, and I think that, that’s exciting. Fixed costs today per unit are probably higher than they’ve ever been or at least near all-time highs.
And that’s because volumes are lower, and we’ve got a fixed cost business, and we feel like we’re going to returns on those investments. I think that’s — once you’ve got costs, you’d rather than be fixed than anything else. So I think that, that’s good news, but certainly our fixed costs are high relative to our sales today. And we do think we’re getting a return on that investment. We continue to — we plan to reduce those costs over time. We plan to reduce the dollars of those fixed costs. We’ve been making progress on that, but we can make more progress. And then the remainder of them on a per unit basis go away with scale. And some of them go away just with the passage of time. Today, we still have many facilities that we’re massively underutilizing, in the case of some of our office space, that office space that will probably go away over time.
In the case of our inspection centers, for example, that’s something that we expect to live with scale. So I think we’ve clearly got a path to significant additional gains in expenses across all types of expenses. I think the biggest gains are behind us, and they took the form of that kind of semi-variable form where just getting the business back in balance was really valuable. And then you also asked a question about delivery fees. So something that we have done over the last year is we’ve changed our offerings such that when customers elect to buy a car that is further away from them, especially in case when there’s a car that’s closer to them, we will charge a delivery fee. And so that is flowing through our gross profit. I think Mark spoke about that as being something that’s different from the gross profit that we’ve had in years past.
For our customers, we still have thousands and thousands of options available to them that are free. But if there’s some specific feature option or unique component of a car that they’re interested in, that’s further away. They can still buy those cars that are further away, and we will charge a delivery fee. And I think when we go back to our previous best GPU year, which was 2021, we were at $4,500 for that year, that was a year where we didn’t have that approximately $500 line item. That was a year where we didn’t have ADESA. And so I think that’s where Mark was talking about GPU being in a place where we think the future looks very bright relative to the past, and we’re pretty excited about that as well.
Operator: Next question comes from Michael Montani with Evercore ISI.
