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Jared Hamilton
From: Jared Hamilton
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Dennis Galbraith

Dennis Galbraith Chief Marketing Officer

Exclusive Blog Posts

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Going Premium on AutoTrader.com

                One of the tough decisions in automotive marketing is whether or not to go premium with AutoTrader.com. However, knowing whether or not it pays off is not a matter of guesswork. By going from featured listings to premium, your inventory will be included on more Search Results Pages (SRPs). Under the reporting tab of Dealers.AutoTrader.com, this is found in the Executive Summary as "Times your vehicles were seen in a search."

                More SRPs leads to more shoppers selecting your inventory, measured as Vehicle Details Pages (VDPs). This can be found in the same report as "Detail pages viewed for your inventory."

The value of going to premium status can best be measured as the margin cost per VDP. Calculate the additional amount you are paying AutoTrader.com to go from featured to premium status, then divide this dollar amount by the change in the number of VDPs. Generally speaking, we are looking for a marginal cost per VDP of less than $1.

                The $1 per VDP benchmark assumes market pricing, good merchandising, and good lead handling. It also assumes a marginal cost per vehicle sold of $400 is tolerable. Adjustments must be made when these assumptions are not valid. For thousands of dealerships, store operations are so poor that even a marginal cost per VDP of less than $1 is still not cost effective. Generally speaking, these stores should get their house in order before expanding their advertising.

                It is important to evaluate the change to premium status using marginal cost per VDP, rather than average cost per VDP. Chances are your average cost for featured listings is lower than $1. The fact is AutoTrader.com and Cars.com make sense for most dealers. However, the marginal cost for going to premium status is almost always more expensive on a cost per VDP basis.

                In later posts, I'll explain why aggressive market pricing, outstanding merchandising, and the best possible lead handling can make it possible for dealers to gain substantial profits at a marginal cost of more than $1 per VDP. I'll write about other ways to measure the value of listing services. And yes, I'll also write about Cars.com.

Jared Hamilton
Dennis, this is really insightful and makes sense. I had to read it a few times to make sure I was following properly, but thanks for sharing. I look forward to the next couple posts. If you have reports and can show us a dealer a) and dealer b) and how you would analyse their reports that would be super awesome to see (and a lot of work to put together, i know). I appreciate you sharing your knowledge, its inspiring. :-)
Dennis Galbraith
Base on Jared's comment and others by phone, this post left too many blanks to be useful. I'll develop a paper on the subject with tables and graphics to paint a clearer picture. Until then, I hope the following example helps. The numbers are reasonable based on my work with actual results. A rural dealer subscribing to the featured version of AutoTrader.com might receive 150,000 SRPs and 3,750 VDPs per month at a cost of $2,000. The cost per VDP is $0.53. From these VDPs, the dealer receives a total of 50 phone calls and emails per month. A good, conservative estimate of the total store contacts, including walk-in traffic is 1.5 times the combined total of phone and emails. In this case, total store contacts are 75. The close ratio for phone and email leads for this dealer is 10%. The dealer is sure they do better on walk-in traffic, so agrees that 12.5% is lower than they should be doing for contacts from people coming in for specific inventory, but a reasonable estimate of where they are now overall. A 12.5% close rate on 75 store contact is 9.38 sales per month. This is $213 per car sold, derived by dividing 9.38 sales per month into the $2,000 cost per month for the service. This is much lower than the dealer's acceptable level of $400 per sale. AutoTrader.com is a bargain for this dealer, but will going to premium be a bargain as well? If $400 per sale is the threshold, and the close rate is expected to be 12.5%, then the store can afford to pay up to $50 per store contact. Since 2% of this dealer's VDPs convert to a store contact (75 store contacts /3750 VDPs), the dealer can afford to pay up to $1.00 per VDP ($50 per store contact times 2% conversion from VDP to store contact). After three months on the premium package, the dealer's VDPs have increased by 2,000 per month. His AutoTrader.com investment increased by $1,500 per month. The marginal cost per VDP is $0.75. This is higher than the dealer was receiving for the featured package, but lower than the acceptable threshold. Therefore, the choice to go premium was a good one and the purchase should be continued. Yes, this requires an algorithm for calculating total store contacts. The research Cars.com performed in 2008 is the most conservative and the basis for my analysis here, (phone + email) * 1.5 to add for walk-in traffic. There may be some duplication among contacts, so a conservative estimator seems best. It also requires having a good estimate for the store's average close rate. Everything else is exact. Note that the dealer now receives 5,750 VDPs per month at a total cost of $3,500. The average cost per VDP has gone up from $0.53 to $0.61. That does not matter. What matters is the marginal cost. Other services offering VDPs with the same conversion and close rates at less than $0.75 per VDP should be chosen first. However, anything less than $1 per VDP is worth doing for this dealer.

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