How big should your Internet department be?  The answer to this question lies in your approach. From a traditional standpoint, the obvious plan is to build your department according to your budget. Since most dealerships already have traditional advertising programs in place, they tend to approach the Internet channel slowly: they invest a small percentage of their ad budgets on Internet leads and see how they do.

Now that the Internet has proven itself as the most efficient way to sell cars, dealers who want to grow their Internet departments can afford to do so more aggressively. To determine just how much you should ramp up your department, you can back into your answer with some easy math. First, take your dealership’s average monthly advertising budget – let’s say it’s $50,000.  This budget covers the cost of newspaper ads, radio, some local TV, direct mail, and even balloons for the lot.  A small fraction, 5%, is dedicated to the Internet.  This allocation covers generating leads on your dealership’s website, partially subsidized Internet leads from your OEM, and leads from third party providers. So, at 5% of your budget, a total of $2,500 per month is directed to Internet leads.

For simplicity’s sake, let’s average out the close rates and per lead prices for the three main leads sources - dealer sites, OEM sites, and third parties.  At an average per lead price of $24, you get 104 leads for your $2,500 investment. 104 leads are enough to keep one ISP busy selling for a month. At an average close rate of about 18%, you’ll sell 18 - 19 cars.

This is fine, if you’re content selling 18 cars.  Now, let’s look at your lead buy in another way: call it meeting consumer demand for your market, at the source. 

Meeting Consumer Demand at the Source

As more consumers use the Internet in their car buying process, Internet lead volume is growing. Nielsen/NetRatings reported that nearly 75% of the 204.3 million Americans have access to the Internet from home. And, as automotive is a favorite category among consumers, the volume of Internet leads is “exploding” says J.D. Power and Associates.

For metro dealerships that sell volume brands - Ford, Dodge, Chevrolet, Honda, Toyota, Nissan, Kia, or Hyundai - and are only getting about 100-125 leads per month, it’s conservative to say there are, at least, another 350 leads available in the immediate  market area (within a radius of 15-20 miles). In addition, there are even more leads available beyond that territory. These leads represent immediate consumer demand.

The key for a dealership is to build an Internet department that is ready to meet that demand.  The easiest way for a dealer to find out how many leads are available in his or her market area is to contact one or all of the top third party lead aggregators - Dealix, AutoUSA, and Autobytel.  “With their expertise in Internet marketing and partnerships,” says David Kain, former COO of FordDirect and now president of Kain Automotive, an Internet sales training and consulting firm, “lead aggregators, like Dealix, are able to put their dealers in front roughly 85% of the auto consumers who are going online to research and shop for vehicles.”

Now let’s assume you decide your approach to growing your Internet department is to meet all of the consumer demand in your market area. You want all 350 leads available for your market. At an average per lead price of $24, you reallocate $8,400 of your ad budget to buying leads.  If the average ISP handles from 80 – 120 leads per month, your Internet department should have three-to-four ISPs dedicated to closing your new allocation of leads.  At an average close rate of 18%, your department is now closing about 63 sales per month, or 16 sales per ISP.

The most progressive dealers today are building their departments according to the demand for vehicles in their market areas. Internet dealer Tim Friday of Dils Automotive in Saint Marys, West Virginia explains, “On my own, I’m closing 35 sales per month, and I’m overwhelmed. I can’t keep up with the lead volume – and we live in a very remote area. I can’t imagine the volume in metro areas.”  Friday explained how he plans to meet that demand: “I’ve just hired another full-time person and I’m looking for a third for our department. We also have two assistants.  I’m always networking with other dealers to keep on top of what’s happening in the market place.  It’s universal wisdom that if you can sell 40 cars online, you can sell 50.” 

In the April 2004 issue of the Dealix Dealer Newsletter, Internet director Ryan Hanlon of Pacific Honda in Van Nuys, California, one of the leading Honda Internet departments in the U.S., described how he is building out Pacific’s department: “We’ve built the department to a core group of four sales people who are dedicated solely to Internet customers, plus an Internet response coordinator who helps with administrative work, and me.  Each ISP handles about 130 leads per month.  We plan to grow to six or eight sales people.  It’s just a matter of finding the right people.” Hanlon understands the key is staffing his department according to the consumer demand in his market area.

Just as traditional dealers have extra floor sales on deck to handle showroom traffic on a Saturday afternoon, Internet dealers should learn about how many leads are in their market area and build their departments to meet that demand.

This article will also be published in the June issue of Dealer Magazine.
 

Dean L. Evans is the vice president of marketing for Dealix Corporation.

Kristen M. Stanton is the marketing manager for Dealix Corporation.