Sixth in a Series of Articles on the Eight Essential Elements of Special Finance
It is always difficult to say what drives more questions to my e-mail inbox, lenders or issues on the sixth essential element – marketing and advertising. Once you have the first five elements in place (commitment, inventory, personnel, lenders, and the sales process/deal structure), you are ready to address creating traffic.
As I have outlined in prior columns, it is first more important to know where you are coming from than where you are going to. The first question that must be asked is, “How many leads are you already receiving?”
Yeah, I know that isn’t what you started reading this column to learn, but it is vital as you prepare to spend your advertising budget. Keep in mind that the average full-time sales person can handle 60 – 80 new leads per month. The great ones can handle about 125. Now I know of many 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.
Therefore, you first need to know how many leads your dealership or department is already working per month from existing sources of advertising. I strongly urge you to track your leads. Know exactly how many you are 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, your existing proficiency and will 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 and by mid-month, your traffic (along with sales) is lagging and you have exhausted your advertising funds for the month.
What should the budget be? First, don’t make the mistake of some and set your budget based on the month just ending. This is a serious mistake, especially if you are rolling out of December into January or even January into February in most markets.
The benchmark for Special Finance 20 Groups 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 $2597, that would mean approximately $260 per SF unit sold. Step number one therefore becomes forecast the number of units we expect to sell?
Assuming $260 per unit sold, step number two would simply multiply the number of forecasted units by $260. A forecast of 25 units would therefore provide for a budget of $6500.
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, or one in ten, then to sell 25 units, you will need approximately 250 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 already receiving 100 leads, then you need 150 more. If you already have committed $2500 in some form of ongoing advertising or marketing, then you would have roughly $4000 left to spend with which to generate the additional 150 needed leads. (Remember, we are assuming that we have the staff on hand (and trained) to be able to handle the increase in leads.
Now we can go to work. We need to create 150 leads, and we have $4000 to spend. That breaks down to a little over $26 per lead. Where do we go to accomplish that?
Through the many SF clients that we work with we have learned that the most efficient leads based on cost per lead (and cost per sale) come from, duh, referrals. Now I am not talking about being ideological and assuming that your sales staff is actually following up after the sale and asking for referrals, but rather from the references that are collected with every credit application.
Lenders ask for a minimum of six, and often for as many as ten different references on credit applications. As they say in the Midwest, “The acorns don’t fall too far from the tree.” These references are great sources for potential business. Try a simple introductory letter offering your many special financing programs for individuals with good, bad, or no credit, just like what you were able to offer to Mr. Jones, who used them as a reference. (Remember, you don’t have to have sold Mr. Jones a vehicle!) Check the names against the No-Call list, and call those that are eligible within 72 hours of mailing. You will absolutely get one in ten that you mail to come in, with a high percentage becoming buyers. Additionally, the other benefit of working these references is that if mailed on a consistent daily basis, the traffic will come in a steady, manageable flow – allowing your team to work them more efficiently and productively.
Next on the list in order of lowest cost per sale are the Internet leads. To be sure, these leads come from three separate Internet sources: 1) Lead generators, 2) Your own Web site, and 3) Direct e-mail.
Lead generators are the most often used since departments can purchase actual leads as opposed to buying advertising and hoping that the ads will produce leads. If you know that you need to increase your count by 150 leads, then you can contract with lead generators and predictably deliver the necessary count.
The downside is that not all lead generators are created equally. You generally get what you pay for, and while the cost per lead may be as much as two times higher from one generator to another, the upside is exclusivity and the ability to filter by income and beacon scores. Without a doubt, Internet leads require a distinct process, starting with quick response times. While the benchmark sales ratios with Internet leads is nearing 20 percent, those not working a sound process may see conversion ratios in the 3 percent – 5 percent range.
A higher percentage of sales will normally close with those individuals that make contact though your own Web site. Unlike the leads received through generators, which are created through a variety of methods – the lion’s share being blind leads, the individuals inquiring through your own Web site already knows they are applying to your dealership. Rapport and trust is much easier to build with these individuals as they already understand they are working with your dealership. The challenge here is that you must spend your money attract the buyers to your Web site, then, you must turn them into a lead.
Many dealerships are using a separate SF Web site, devoid of pricing, with a detailed credit application and focusing on the customer’s ability to obtain an auto loan. To attract traffic to the Web site, they feature this Web address in liner ads or they incorporate them into their primary dealership advertising. Some go even further and enlist the aid of companies that specialize in search engine optimization such as AutoDealerTraffic.com. This will insure that Googlers looking for a dealership’s Web site specializing in “bad credit auto loans” will find your site first.
Finally there is direct e-mail. There still does not appear to be a company providing this service effectively to dealers using the same type of criteria as in traditional direct mail. However, many dealerships are making a concentrated effort to obtain the e-mail address of all of their customers. Those dealerships buying leads start one step ahead in that they already have the e-mail address. In dealerships that are closing sales at benchmark performance levels, 80 percent of the leads received go unsold. Why not develop a solid database and continue to market to these customers with simple to create, and unbelievably inexpensive to deliver e-mails? I know of one dealership that raised their sales volume while at the same time reducing their annual ad budget (in a smaller market) by $250,000, by doing so.
The third best cost per sale medium tends to be the weekly newspaper-type periodicals such as the Thrifty Nickel, the Penny Pincher, etc. They are found in grocery, drug and convenience stores, and are free of charge. Buyers of used vehicles will generally pick up one of these magazines at least once prior to their next purchase, and certainly, the majority of Special Finance sales are used vehicles.
The challenge with these publications, is to stand out from the pack. Rather than making your ad mirror all of the competition, consider both your placement as well as your copy. We were always in the Thrifty Nickel in our markets, but never with the traditional 12 vehicles, all with prices and equipment. We chose to either be on the front cover, the cover of the Motorcade section, the back cover or with a brightly-colored, two-sided flyer inserted in the fold. Our message would always feature easy credit approval, our “special” sale, and feature a handful of attractive vehicles. Rather than prices, we would feature payments and/or down payments (always with proper disclaimers), which ultimately is what your customers are most concerned about.
If referrals, Internet leads and the free weekly magazines don’t fill you lead requirements, the next best cost per sale largely depends on the size of your department or dealership. For many dealerships, budget restraints and market size dictate your direction. Larger markets make it difficult to even consider broadcast media. Smaller markets and smaller sales volumes make some of the “event sales” used by larger stores nearly cost prohibitive. As a result direct mail or newspaper inserts become an attractive choice.
The challenge with direct mail is being able stand out from the crowd, without crossing the line into deceptive advertising. So many dealerships use direct mail that in some markets an individual with a newly discharged bankruptcy is likely to receive mailers nearly once per week from a Special Finance department. Certainly, the message and the mailing list will make the difference between the cost effective campaign and extreme frustration.
Higher budgeted departments with larger inventories will opt for combinations of broadcast media, usually television, opting for spot buys or infomercials that are half an hour or longer. The spot buys can offer more frequency and reach, helping to brand your dealership or department. The infomercials will produce “instant” leads, but lesser long-term branding. Beware that if you opt to produce your own infomercial and place your own buys, the cost of entry can be pricey, and the time of day that your infomercial airs can produce a significant difference in the quality of the leads. In either case, television tends to produce a higher cost per sale than either working referrals or the Internet.
One thing is certain, unless you intentionally desire to keep your Special Finance department under the radar screen in your local market; you should dedicate a portion of your budget to a medium that delivers your branding message to your market. A drawback to opting simply to buy leads is that outside of the individuals that you make contact with, your market in general is not aware of your presence in the Special Finance arena.
To summarize, there really is no silver bullet when it comes to marketing and advertising. My wife, who was a partner in an advertising agency for a number of years, always told me that advertising was more of a black art than a science. She also insisted I remember, “If something is working, don’t change it for the sake of change; and if you have put together a good plan – give it a chance to work before you pull the plug and change directions.”
The best advice she most likely offered me years ago was to track your advertising like crazy, learn from the results, budget your money and take advantage of seasonal fluctuations by leveraging your budget accordingly in peak seasons. Do the same and you should also meet or exceed benchmark performance.
Vol 2, Issue 6
Experts say new IRS rules are sparking a downward trend in refund amounts, threatening the loss of an annual catalyst for used-car sales.