January 2008, Auto Dealer Today - WebXclusive
Dealers often spend advertising dollars without tracking the “true” productivity of each medium. Since the market is more competitive than ever, we have to compete to have the most effective advertising mediums as well. To track advertising efficiency, you must track what each medium generates in both sales volume and gross profit.
When tracking advertising of any type, you must use at least 90 days of data to accurately reflect your results. Then as you review the tracking results of each individual medium, if the advertising cost per sale is above $250 (in some metro stores that number could escalate to $550) or your cost per lead is above $30 (in some metro stores that number could escalate to $100), you should consider a different source.
To interpret the data let’s look at an example. If you send a bankruptcy mailer that costs $1,500 per month and generates is 10 leads, the cost per lead is $150. If those 10 leads only generate two sales, the advertising cost per sale is $750. At a total gross profit of $7,000, that is probably an expensive type of medium.
Don’t be afraid to switch venders if necessary. Just because one particular vender yields these results doesn’t mean that a bankruptcy mailer isn’t cost effective; it just means you want to lower your advertising cost per sale. Always consider the mail piece. If you pay $2,500 for a good bankruptcy mailer that generates 30 leads (cost of $83 per lead) which in turn generates five sales (or $500 per sale) at a total gross profit of $12,500, which mailer would you rather have?
Examine Internet lead providers the same way. If your purchase 200 leads at $15 each ($3,000) and 10 sales are generated at a total gross profit of $18,000, is that a good investment?
If another Internet lead provider sells you 70 leads at $40 per lead (or $2,800 total) and you sell 14 units at a total gross profit of $35,000, you paid more per lead, but the quality of the lead was higher, yielding more sales with a higher average gross profit.
Another medium example is infomercials. If you make your own infomercial in which leads are driven to the dealership, but not tracked by an 800-number or online credit application, you cannot even track the leads driven by this source, which means you will never be available to determine the productivity of your infomercial campaign. You must use 800-numbers, a Web application or both for tracking. If you purchase an infomercial from an outside vendor, make sure they have this tracking available. You can also assign different numbers and Web sites to determine which television stations yield the most sales and gross profit.
Black and white numbers do not lie. If you diligently track the performance of each medium, you can pinpoint where you can spend more of your advertising dollars to generate more sales and more gross profit. This needs to be done on an ongoing basis. Without tracking your advertising dollar, you may watch your department productivity fall and not know what to change to make a difference.
Special Finance Insider Vol. 2, Issue 1