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Brian Pasch

Brian Pasch CEO

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What Is Your True Cost of 3rd Party Leads?

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Dealers are very comfortable with companies who offer to sell sales leads to supplement the leads that their own website generates.  

Most dealers have sold cars from 3rd party leads. Some dealers have made third party lead companies a part of their marketing plan in addition to lead generation services that leverage Google Adwords. 

As long as the ROI is there, I support their decision because the best lead generation partners will help dealers sell more cars at a reasonable profit.

After all, the Dealer Principal or General Manager is well qualified to judge the ROI of their business investments. It is what they do best.

Selling Leads Is A Big Business

Third party leads are a big business.  Companies such as Dealix, AutoUSA, KBB, Edmunds, TrueCar, etc. have invested significant resources to educate dealers on the value proposition that they offer to help dealers sell more cars.

However, the challenge today is lead attribution to the actual sale.  Since consumers are visiting 18+ websites during what Google called the "Zero Moment of Truth", consumers are submitting leads on multiple websites during their shopping process. Dealers are expected to pay for these leads because each website vendor claims they generate great leads.  So, who get's credit for the sale?

Who can say that the consumer, who submitted their information on a 3rd party site, did not also see a display ad from the dealer or visit the dealer's website?  Who can say that the consumer didn't hear a current radio promotion on Pandora that prompted them to start researching online? The eco-system is more complicated than some would admit. Multiple parties are involved as the consumer moves down the sales funnel, so how do we add the cost of those influences to the price of a sale?  

Simple Math Fails To Show ROI

Have you heard this pitch?  

Buy 100 leads at $20 a lead, as a test of my company. Just invest $2,000 in my leads and I will show you a great ROI.  The average dealer using my leads will sell 10% of the leads, which means that you will sell 20 cars.  Let's also say that each sale will have an average gross of $2,000. So you invested $2,000 to generate $20,000 in gross sales.  That is a net profit of $18,000.  Awesome ROI!!

Have you heard this justification?

That math is flawed.  How many of those customers came in from other sources that you also paid for as a lead?   How many of those customers also submitted a lead on your website?  How many were existing customers? How many leads was the store already working? Is the gross really $2,000 on new cars? 

What happens when those leads are not $20 but much higher in cost? 

Please don't forget that leads do not sell themselves. Dealers need to add the employee costs associated to work those leads.  That math needs to include the pay plans on the appointments, shows, and sales. Doesn't the cost to work the leads play into the net profit calculation?  Why are those numbers never worked into the ROI calculation by 3rd party lead providers?

For example, in a BDC model, the BDC manager may make $60-$80,000 a year and each employee may cost $36,000 a year.  If a BDC employee can handle 100+ leads a month, you have at least $3,000 a month in employee costs and you have to allocate the manager costs, technology costs, health benefits, and sales delivery costs into each of those sales.  

A sober cost calculation changes the math but does not necessarily make 3rd party leads unprofitable. The dealer needs to make that educated decision based on real math.  Managers have to use a more accurate costing model. It is not simple math however if a dealer feels that a lead service or strategy is delivering a good ROI, based on their market, it is their choice.  

Lead Attribution Is Foggy

The simple fact is that lead attribution is very difficult as mutiple parties are trying to convince dealers that they have "exclusive" leads that are of higher value than those they can generate on their own.  The lead attribution model is still in its infancy but we know that rarely does a single SOURCE make a consumer take action.

Let me be clear.  Dealers today need third party partners to increase the visibility of their inventory to sell more cars.  The majority of dealers today do not have the internal staff required to maximize their online marketing opportunies. Every dealer however, has to make their own choices on what is working in their local market. 

Whether dealers use Autotrader, Cars.com, CarGurus.com, KBB, Edmunds, TrueCar, Google Adwords, SEO Companies, or any other partner has to be with the full knowledge that lead attribution is not isolated to the vendor partner's data. Dealers can not attribute leads to a single point of influence; the data speaks to just the opposite.

Dealers Choose Leads Based on Perceived ROI

Knowing that lead attribution is still in its infancy, dealers will choose marketing strategies and 3rd party lead partners they believe will help them sell more cars at a reasonable cost. Until better research is availble, I am comfortable with allowing the dealer choose which marketing partner they believe is working.   That's their business. 

With that said, let's not do kindergarten math on the cost of leads and the net profit that 3rd party leads generate.  Leads require real people to work the opportunity. Leads are not always unique. Duplicate lead sources show up in CRM systems on a regular basis.  

We do need a better system. Let's work toward a multi-channel lead attribuition model that gives dealers actionable data and not just marketing hype.  Our industry has to stop treating the dealer as incompetent digital marketing operaters who are unable to sell cars on their own.  

Vendor partners have to collaborate to build comprehensive sales strategies that make sense for the dealer and the vendor. This is missing today.

The current model is best described as one vendor shouting over their competitor with the implied message that the dealer is not smart enough to connect with local consumers on their own.   Something is just wrong here.

How are you attributing cost per lead? 

 

Brian

Brian Pasch, CEO
PCG Consulting
732.672.2356
Google

Ben Misra
This is a great example on how dealer get duped everyday by 3rd party leads ( internet) lead providers. The best lead you can get is the one that goes to your dealer website and makes the choice to call, email or simply go in to the dealer. The big math flaw is the fact that this customer at the prime level is not a $ 2000 gross anymore. The new website customer is the educated shopper. They have gone to your website and 20 other ones before they make a decision. By that time they already have the best price. You will lucky to make $ 1000 minus your commission and overhead. In the case of the sub prime customer, those 3rd party internet leads do not have the same math anymore. Buying 100 random leads from a company means you will get a hold of 50% if you are lucky (50). make appointments with 30% (15), have half of those show up (8) and sell 20% of those.(4). With that sub prime customer you could make the $ 2000 each which would be a gross of $ 8,000 minus your commissions ( 25%) $ 2,000 minus the cost of the leads $ 2,000. Your net profit would be $ 4,000. Much smaller ROI than what they sell you. You could make that by just putting up "Yard Sale " signs.
John Ervin
One more thing to add in is the added cost per click you have to pay in order to drive people to your website. Your giving a company money to compete against you in the advertising world, and then they are charging you 20 dollars to buy back your own customer. Oh, that's right, plus they are selling that right to other lead company's, 5 of your leading competitors, and your grandma, if she will give them a buck. Brian, don't get me started!
Ben Misra
Don't forget that most important thing about internet leads. 6 companies will sell you the same guy 6 times plus there is no credit screening. Who is still paying for a random lead for $ 20.
Joshua Michael Friedman
Great topic. Just a few days ago, on a related issue, Jeffery Byrge wrote: "The standard is, the first lead in is the one that is credited with the source of the sale." http://www.drivingsales.com/blogs/hello-from-jeff/2013/08/31/my-first-blog-amidst-controversy-trucar That attribution model may be an extension of the rule on the sale floor re: no-split-deals, and for the purposes of day-to-day housekeeping, it keeps things simple. But what if a lead is first by six days... six weeks... or six months ago? If I had to pick one influencer only, why not the last lead source, same rationale as crediting the sales person who actually closed the sale? Actually, the one-lead-source model is broken, and we may use it because it's easy to, but it clouds our insight into what drives sales; it reduces the quality of our decision-making in our roles as dealers, eCommerce directors and ISMs.
Ben Misra
I agree that a customers , especially the one that has challenged credit , will respond to may sources, if not sold. As you well know its the dealers job to contact this customers until he "Buys or Dies". Really if you think of this , there would be less leads out there if the dealers we all doing their jobs contacting these people in the first place and staying on them until the end.

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