How much should our dealership spend on digital advertising? Many car dealership managers and owners ask this question in different ways, and the answer can be elusive. In this article, we are going to provide a solution that dealership personnel can easily understand and implement into their current digital marketing campaigns and discuss with their agencies.
An honest answer is, “It depends…” because each dealership is different in area, size, market and inventory, but that answer doesn’t help solve the problem. Rather than providing an actual number, we are going to provide sample data points from what has proven to be successful. Let’s assume a total digital marketing budget of $30,000 for a given month. A marketing budget applicable for car dealers is broken down into percentages and dollar amounts. The core digital channels are shown below and help answer how much a dealership should spend on their digital marketing efforts.
Above is a general sense of how much budget allocation each digital channel should receive for a car dealership. This data was obtained from surveying predominantly franchise dealerships (varying between domestic and import manufacturers) during a higher sales volume month in a midwest metropolitan area.
While the answer above gives actual percentages and dollar amounts for auto dealer’s digital marketing channels, this should not be taken as a one size fits all budget recommendation. Further in this article, we will be showing simple steps in creating a custom car dealer digital marketing budget as well as laying out the steps and associated metrics to measure each step of the process and the key concepts to pay attention to.
Defining Dealership Digital Marketing Success
In order to be successful in any advertising channel, one must first define success. Success for car sales is simple, selling more cars, but there are many steps in between serving the customer an ad to selling them a car. How can we track and combine what’s in the middle? Some channels are easier to measure than others. This article only takes digital marketing channels into account. Google ads and Paid Social campaigns (exs: Facebook, Instagram) give transparent measurement as all platforms provide a plethora of different metrics and data sets to analyze.
Reverse Engineering A Dealer's Digital Budget
The first step to establishing a budget is to define the cost of the end result. For auto dealer digital advertising, the end result of a digital marketing campaign is defined as a conversion. In the digital realm, a conversion represents a wide variety of activities and literally is defined as a user completing a desired action. Listed below are 4 conversion examples that we will use throughout the rest of the article.
Digital Budget Calculation Example
The Infographic below illustrates the steps to determine a digital advertising budget for your dealership and is further explained in the following paragraph.
After defining our conversion examples, we assume that conversion is a lead and establish a monthly amount for each type. In our example we generated 1000 leads: 500 phone calls, 200 chats, 150 Form Fills, and 50 coupons downloaded. Now, we define our monthly sales example assuming 100 units were sold, in the same month, and directly correlated to our conversions which yields a conversion rate of 10% (100 sold units for 1000 leads).
Next, we define our gross profit by assuming each unit was $1,500 in gross profit which equates to $150,000 in gross profit for that month. For this example, we’re going to say that all the leads generated sales equally (which is not necessarily true in a real scenario, but will help explain this example). From the above example, the following conversion values are calculated by using a lead ratio. Each conversion value is calculated to be $150 for the business meaning each conversion is worth $150.
To increase the overall monthly sales goal to $200,000 in gross profit and keeping the average $1,500 gross profit per unit, we know we need to sell about 133 units. On average it takes about 10 conversions to sell 1 unit so now we know we need 1330 leads to meet the goal.
The Final Step is to determine a cost per conversion for each marketing channel to see how much it would cost to get to the desired 1330 leads. Now we look to our marketing channels to see which has generated the most amount of conversions and that’s where we allocate budget!
This example justifies why a large number of dealers spend more than half their marketing dollars in paid search; the reasoning is absolute. Paid Search is effective because, besides SEO, it is the primary driver of high intent interest. People use Paid Search (Google Ads) to find what they're looking for; users on this platform tend to yield higher conversion rates, which is directly correlated to sales. Proponents of Paid Search may speculate lead quality on Google and Bing as opposed to other social media platforms thus justifying the need for more ad dollars.
Caveats & Other Considerations
Not every marketing channel will show attributed conversions every month but that is not necessarily a reason to stop using that advertising platform. SEO as an example does not directly correlate to sales immediately but will have a large and long-lasting sales impact if performed correctly.
Cost per conversion is a great metric to use for paid marketing channels specifically lower funnel channels, but higher funnel and entire funnel channels like Display, Video, and Organic Social Media are still worth investing in because they are more focused on generating results related to LTV or the lifetime value of the customer. Higher funnel strategies also help in assisting conversions as another step on the buyers journey.
The example budgets illustrated above are missing key digital services that cannot be neglected such as website services, reputation management and 3rd party lead providers just to name a few. Traditional advertising mediums may also be effective as long as there are some parameters set for measurement and expectations are clear.
The statistics used in the answer section are based on a midwest metropolitan market ranging across franchise dealers. The budget spends were taken during summer months where advertising is very competitive. To retrieve more accurate data, the sample size should be larger and more comprehensive coverage amongst additional services. Even though there are limits to this data, this gives dealership personnel a solid starting point to understand how much money is required for a dealership's digital marketing campaigns. Just because these dealers are allocating specific percentages does not mean that is correct for all dealerships. The DDM team believes in a strong paid search and paid social strategy with supplemental services in email marketing, and SEO as we’ve seen PPC and social media yield very strong engagement and are quality lead drivers for auto dealers. This does not mean that other marketing channels should be ignored because, as a best practice, tests for each demographic and audience should be implemented into a strategy.
The information in this article can be eye-opening but also simultaneously overwhelming. Digital marketing is fantastic because it allows for more visibility and tracking into advertising. All of the tracking and numbers should be taken with a grain of salt. If you’re stuck and still unclear as to determining your budget, I recommend using the information and template depicted in the beginning of this article, and then fine-tune as you go. In order to have a healthy comprehensive marketing plan, you should be utilizing and testing all of these mediums. Now you’re on the right path to discovering & understanding how much you have to spend on digital advertising to sell more cars. Happy selling!