Article

Burning Benjamins - Can You Afford Not to Embrace Special Finance

March 2007, Auto Dealer Today - WebXclusive

by Tim Randall - Also by this author

I love the Special Finance business and I am particularly partial to the Internet lead business. With that in mind, let’s focus on SF Internet leads and cost per sale for advertising. The truth of the matter is that with Internet leads, every sale costs the same as every no-sale in advertising dollars. The difference is one produces a profit, the other none. Let’s analyze this point.

Let’s say you spend $2,000 a month for Internet leads and sell 10 cars with your advertising investment. The cost per sale calculates to $200. Let’s assume you received 100 leads for your investment making the cost per lead $20. Your actual cost per sale is $20, and your cost per no-sale is also $20. Selling 10 cars cost $200 and not selling the other 90 customers cost $1,800 plus lost potential revenue.

Are you still with me on this? Now keep in mind, this is raw advertising money. Selling the 10 cars at the national average gross of approximately $2,500 leaves you with a gross profit of $25,000, a very nice ROI. An added benefit is that you took those customers out of the market. There’s a downside to not selling the other 90 customers; they are all still out shopping – probably at one of your competitors’ stores.  

Here’s a sad reality. A majority of the remaining 90 customers were probably not even called by your staff. Case in point, recently I was discussing with a salesperson why he hadn’t worked every Internet lead that was provided to him. He said that the customers he didn’t call weren’t worth his time and effort after his paper analysis.

Amazing—without even talking to the customer this salesperson knew who was worthy of his time and experience. I figured that if he was that smart, he must know what the equation was for dividing zero. He said that there wasn’t one and asked why I asked such a stupid question. I stated that zero is exactly the profit he had to divvy up with his dealership from the no attempt and no-sale. In fact, I told him that he should tell his managers that he personally made the decision to earn zero dollars for them on that opportunity. He took exception to my comments.

Whether you make an attempt at the sale or not, that lead cost you advertising dollars. Every time you pass on an opportunity to do business with a customer it costs you money.

If your staff doesn’t work the customers you provide for them you might as well just burn your Benjamins. Your advertising dollars mean something to you don’t they? Make sure your staff understands this, and hold them accountable for the money you spend to help them make a living. Stop listening to excuses.
 
Just how effective are Special Finance Internet leads against traditional advertising sources? Let’s do a quick comparison of other advertising and SF Internet leads. I’ll be conservative with the numbers and use $50,000 for all other advertising and $2,000 for SF Internet lead advertising. The ad dollar ratio in this case would be 24-to-1. It’s well documented that over 60 percent of all available customers qualify for sub prime financing. Can you see the disparity of spending just 4 percent of your advertising dollars to capture 60 percent of the total market share and 96 percent of your money to attract the remaining 40 percent? Your division may be different, but I would guess it’s close to the example I’ve given. Somehow, these numbers don’t make sense to me, but let’s continue.

Let’s go back to the 10 cars sold with SF Internet leads. Easy math indicated that the advertising cost per sale was $200. That’s far below the 2006 NADA Data report which indicates an average advertising cost of $457 per new vehicle retailed. If your other advertising cost per sale was equivalent to SF Internet leads, you should have moved 250 cars for your $50,000 investment. In reality, you’re probably in the neighborhood of about 109 units. Doesn’t sound like that much of a difference, but theoretically for every $2,000 you spend on other advertising, you sell just 4.3 cars instead of 10. That is a staggering difference in number of cars sold per advertising dollar.

Are you not fully convinced that Special Finance is worth the effort? Here’s some numbers from an article I recently read about a dealer in New Jersey written by the dealership owner. Knowing that there was little profit in his new car sales and enjoying only a fair profit with his pre-owned inventory, he made a critical decision to go all out in Special Finance. This single change now earns him an additional 260 sales a month and adds $900,000 in gross to his bottom line profits. This is above his normal new and used car sales numbers. His profitability changed when he decided to chase the 60 percent of customers not pursued by other dealers.

Can you afford to not embrace Special Finance customers?  Don’t you think it’s time to reconsider how you spend your advertising dollars, put more toward Special Finance Internet leads and spend less on other advertising to increase your total profitability? The dealer in New Jersey is very happy with his results – and his employees are, too. Stop burning your Benjamins before you have none left to burn.

Vol 4, Issue 1

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