You Get What You Pay for When It Comes to Internet Leads
Overall Return on Investment vs. Per Lead Cost
This article will also be published in the July issue of Ward’s Dealer Business.
It’s natural to focus on lead price when you’re choosing a lead provider. But at the end of the day, the most important measurement of the success of your Internet program is the overall return on investment (ROI). The following tables show, in simple terms, how with Internet leads it doesn’t pay to be penny-wise and pound-foolish. You’ll see that quality Internet sales leads that have a higher probability of closing are worth a higher price point. Plus, leads with higher close rates boost your ISMs’ productivity because they have to manage fewer leads to sell more cars.
|
Cost per Car Sold with 100 Leads |
| Close Rate |
Lead Price |
|
|
$15 |
$17 |
$19 |
$21 |
$23 |
$25 |
|
4% |
$375 |
$425 |
$475 |
$525 |
$575 |
$625 |
|
5% |
$300 |
$340 |
$380 |
$420 |
$460 |
$500 |
|
6% |
$250 |
$283 |
$317 |
$350 |
$383 |
$417 |
|
7% |
$214 |
$243 |
$271 |
$300 |
$329 |
$357 |
|
8% |
$188 |
$213 |
$238 |
$263 |
$288 |
$313 |
|
9% |
$167 |
$189 |
$211 |
$233 |
$256 |
$278 |
|
10% |
$150 |
$170 |
$190 |
$210 |
$230 |
$250 |
|
11% |
$136 |
$155 |
$173 |
$191 |
$209 |
$227 |
|
12% |
$125 |
$142 |
$158 |
$175 |
$192 |
$208 |
|
13% |
$115 |
$131 |
$146 |
$162 |
$177 |
$192 |
|
14% |
$107 |
$121 |
$136 |
$150 |
$164 |
$179 |
|
15% |
$100 |
$113 |
$127 |
$140 |
$153 |
$167 |
|
16% |
$94 |
$106 |
$119 |
$131 |
$144 |
$156 |
Advertising Cost per Unit
If you’re getting low close rates with your leads, for example, in the 4% range, the cost of your Internet program is equivalent to the cost of traditional advertising. Both will generate an average $575 per car sold in advertising costs. The beauty of Internet leads is that they are far more efficient, and measurable, than traditional advertising. The key is to use the best leads from a leading provider. While traditional advertising can help generate brand awareness for your dealership, it doesn't come close to the marketing horsepower of quality Internet leads.
The reality is, with quality Internet leads, you can dramatically reduce your cost of goods sold. Spending $25 per lead for leads that close at 14% is more cost-effective than spending $19 per lead for leads that only close at 8%. The former carries a $179 cost per car sold; while the latter is $238 per car sold.
When you consider the overall ROI from your lead program, the effects of lead quality on your bottom line become even more pronounced. One thing to keep in mind, when calculating your ROI, it’s important to distinguish the average close rates for each of your lead providers on an individual basis so you can weed out the weak performers.
|
Sample Monthly Cost Analysis |
|
|
Cost per Lead |
Cost of Program |
# of Leads |
Close Rate |
Cars Sold |
Cost per Sale |
Average Gross* |
ROI |
|
Provider A |
$ 25 |
$ 3,000 |
120 |
14% |
17 |
$ 177 |
$ 25,500 |
$ 22,500 |
|
Provider B |
$ 22 |
$ 3,000 |
136 |
11% |
15 |
$ 200 |
$ 22,500 |
$ 19,500 |
|
Provider C |
$ 19 |
$ 3,000 |
158 |
8% |
13 |
$ 230 |
$ 19,500 |
$ 16,500 |
|
*Estimated $1,500 per vehicle - Automotive News 2004 Market Data Book. |
|
|
|
|
Table 2
In the example in Table 2, Provider C, with its $19 per lead price may initially seem like a good deal. But if the close rates are off and your ISM has to sift through multiple bad leads to make a sale, that discounted lead price will actually cost you more than if you had paid a higher price for better leads, as with Provider A. Not to mention, the leads from Provider C may have a deleterious effect on your ISM’s normally sweet disposition.
In the end, the lead provider with the best leads, even if they’re at a slightly higher price point, is going to make you more money. Lead quality, more than lead price, and your own sales process are the strongest influencers on the success of your Internet sales program.
Dean L. Evans is the Vice President of Marketing for Dealix Corporation.
Kristen M. Stanton is the Marketing Manager for Dealix Corporation.
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