When discussing advertising, there are two basic types to consider: branding (or image) and call to action. For example, the manufacturer develops their brand, image and appeal, while dealers create call-to-action ads that are designed to attract people to their dealerships.
You need to do both. Oftentimes you can do it in the same message, but both aspects are important. They have something else in common; they both cause you to spend your money. Before you do, you need to determine how many leads or ups you must create with your money and your budget how much budget you need.
Those that know me or have read my columns know that when someone asks me what they can do to drive more traffic to their department or dealership, the first thing that I respond with is the question: “How many leads are you already receiving?”
Why is this important? Efficient marketing is achieved in automotive retail when the total numbers of customer opportunities equals the maximum number that the sales team can properly handle. Any money spent to bring one more customer opportunity is wasted. The goal becomes reaching your maximum capacity at the lowest cost per sale.
The average, full-time sales person can handle 75 new opportunities per month. The great ones can handle about 125. Yes, there are dealerships who have people handling 150, 200, even 250 new leads per month, but they are simply picking the low hanging fruit. Their closing ratios are generally well below average, and their follow-up for both prior sales and unsold leads from prior months are virtually non-existent. It is possible to process more than 75 new opportunities per sales person per month, but to do so requires the use of a call center, which does nothing more than process inbound and outbound phone calls with the focus on setting appointments (that show up) for the sales team.
What all that means is that you really need to know more than just how many opportunities you have each month. To best manage your budget, you first need to know how many leads your dealership or department is already working per month from existing sources of advertising. This requires consistent and accurate tracking.
To analyze your advertising success, you must know exactly how many leads you’re receiving; the source of the leads, how many you are able to contact within one hour of receiving the lead (assuming they are not a walk-in), how many you are ever able to contact, the number of appointments set, the number of appointments that show and finally, the number sold. From this data, you will learn what is already coming in the door and your existing proficiency; then you’ll be able to determine the all important cost per sale.
Next we need to set a budget. For many, that can be a painful process, especially if you spend your money poorly, which causes laggings traffic and sales by mid-month and zero advertising funds left for the remainder of the month.
What should the budget be? First, don’t make the mistake of setting your budget based on the month just ending. Avoid this serious mistake by forecasting your anticipated sales and budgeting from the forecast.
The guide is approximately 10 percent of the front-end gross profit (general ledger gross profit, which adds back in any soft packs). With the benchmark front-end gross being $2,597, 10 percent is approximately $260 per SF unit sold. Step number one, therefore, becomes forecast the number of units we expect to sell?
Based on that, step number two is to simply multiply the number of forecasted units by $260. A forecast of 30 units would translate into a monthly advertising budget of $7,800.
The third step would then be to determine what your existing closing ratio is. The benchmark is roughly 17 percent, or one in six leads. If your department’s closing ratio is 10 percent, then to sell 30 units, you will need approximately 300 leads.
The fourth step is to determine both how many more leads you need, and how much money you have left to spend. In the above example, if you’re already receiving 100 leads, then you need 200 more. If you already have committed $2,500 in some form of ongoing advertising, then you would have roughly $5,300 left to spend to generate the additional 200 leads. (Remember, we are assuming that we have trained staff on hand to handle the increase in leads.
Now we can go to work. We need to create 200 opportunities, and we have $5,300 to spend. That breaks down to $26.50 per lead. Your challenge then becomes to identify the most effective way to both deliver the leads and brand your dealership. All this must factor into the equation to answer, “What is the best way to drive more traffic into my dealership?”
So, what are your options? First, based on the remarkable success at my stores with Internet leads, as well as the ongoing success of the dealers that I work with, I certainly still believe that (when worked properly) they are an excellent way to drive traffic.
However, the drawback with buying blind leads is that you do nothing to build the brand of your dealership or department. Since all lead providers are not created equally, at some point in time you exhaust the number of available quality leads available.
Some dealers choose to have effective phone procedures then look to advertise to create more Internet leads. Here is where opinions differ. Having branded my stores so well, when I visit my Indiana office (where my dealerships were located), someone inevitably stops me and asks if I’m the dealer that can help people with bad credit get a car. It never ceases to amaze me that they feel that they just saw my show on TV because I last aired an infomercial seven years ago.
Others choose to brand a pseudo-third party site. They select a domain name such as www.[fill in the city]carcredit.com and advertise the site through broadcast media. This certainly is an effective way to brand the third party site and can drive significant traffic to it, but here is where I have two issues. First, if I am looking to brand my dealership as one that welcomes people with credit needs, branding a third party site does nothing to enforce that brand.
Second, if developing your brand is not important, then the pseudo-third party sites will generate leads, but all the statistics reported to me by top dealers demonstrate that closing ratios of leads generated through a dealer-branded Web site are significantly higher than those from third party sites. Certainly you could advertise both ways, but if your budget only allows one or the other, I would almost always favor dealer-branded advertising.
So, what are the most cost efficient methods in which to spend your budget? As always, there’s good news and bad news. The good news is that I can certainly answer the question; the bad news is that the answer is so long that it requires a separate column that will have to wait until next month. In the meantime, spend your time tracking what you’re already receiving and determining how many additional leads you will need and your available budget. It may well be an eye-opening experience.
Until next month,
Vol 5, Issue 8