Article

How Do You Manage One Of Your Largest Expense Items?

August 2006, Auto Dealer Today - WebXclusive

by Greg Goebel - Also by this author

This article is focused on marketing and advertising, one of the largest expense items a dealership has on its income statement.
 
Sadly enough, it is an area that most dealers and managers have had very little formal training in. Much of their knowledge has come from trial and error (a lot of error mind you), and the “monkey see, monkey do” approach—where dealers see what they believe is working for other dealers and emulate their practices.

Not coincidentally, advertising in particular is an area about which I receive countless calls and e-mails seeking assistance. Dealers and managers inquire about the “Silver Bullet”—something that will drive traffic to their showrooms or service departments.

My responses have become pretty standard over the years. First, I ask why they need more traffic. The reply is usually, “We need to sell more cars (or a greater car count in the service department)!”

Next, I ask, “How many leads are you currently receiving per month, and from which ad sources are they coming?” The reply almost always begins with, “Well, last month we received somewhere between X and Y.” Almost always it is a range. A large range. Something generally obtained using the SWAG method. . . you know, a Scientific Wild*** Guess.

Finally I ask what they are currently spending, and how it relates to their variable gross profit. I’m not trying to generalize, but most often these answers come back well above 20 Group benchmarks, which for advertising run 7.7 percent of variable gross profit, or 10.3 percent of retail vehicle sale gross profit.

The reason for this is usually the fact that without knowing your true traffic count, and where it is coming from, you really can’t spend efficiently. You have to be able to measure something in order to manage it.

You see, I strongly believe that before you look to change what you are doing when it comes to marketing and advertising, you must first know what it is already producing and what specifically is producing it. I also don’t believe in “Silver Bullets”—you know, the instant, one-size-fits-all cure.

If you start to change or add something to your mix, and cannot answer those questions, you may well eliminate what is working, and replace it with something that provides much less return on your investment.

Additionally, tracking your advertising will provide you additional powerful information on the effectiveness of your sales team, and whether or not you will need additional staffing as you indeed increase your lead count.

If all this seems rather obvious, then why is it so difficult to implement? I have talked with more dealers than I can count that tell me, “Oh I know it is important, but I just can’t seem to get my people to do it consistently. They just don’t seem to have time.”

If that is the case, my suggestion is to go look in the mirror and have a talk with yourself. NADA data indicates that dealerships are spending over $20,000 per month on average. Many clients are averaging upwards of $330 per car retailed. If that isn’t enough motivation to insure that accurate lead tracking and sourcing takes place in your operation, the problem is more deep rooted than just having the time to do so.

I have seldom worked with dealers that once they are able to get their arms around their traffic sources, they aren’t able to identify significant advertising expenditures that can be eliminated and have virtually no impact on traffic. I worked with one recently that discovered that nearly 90 percent of their traffic came from ad sources that amounted to less than 30 percent of their budget. The rest of the sources, the dealer had been convinced over time, were necessary because “all the other dealers were advertising there.”

This leads to the other challenge that dealers must frequently overcome—the panic attack about halfway through the month. (I can raise my hand from personal experience here.) That is when by mid-month sales are nowhere close to forecast, traffic has been light and the need is felt to add another promotion to the end of the month. This promotion can seldom be organized quickly and adeptly enough to create the needed benefits, and at the same time the ad budget is thrown out the window.

As you look to grow your business by driving more traffic to your door, my suggestion is to first insure that you are effectively tracking what is already coming in the door. You may then evaluate its effectiveness (as well as your own sales team’s effectiveness), and then use that information to live within a budget that you have established from your sales forecast.

Doing so will allow you to be more disciplined when those mid-month panic attacks do occur, and should also allow you to focus on the other half of the equation that is often overlooked—that your need for increased traffic is really due to the lack of preparation or abilities of your sales team. After all, your advertising isn’t designed to sell cars; it is designed to bring customers, which gives you the opportunity to do so.

Vol 2, Issue 2

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