What is Your Return on Investment

Calculate Your Numbers Accurately

Numbers never lie. They always tell the story. There is a long-standing debate among car dealers, both large and small, about the merits of a call center, BDC or CDC. Should I open one? Will it be a good investment of people and money, or will it be just another expense I don’t need? Should I outsource it? What should I do to drive more traffic to my store? I have to do something!

The answer to this debate is not simple and will vary for everyone. The answer lies within the numbers of your dealership—the metrics from which you plot your courses of action. The number-one metric that everyone should measure is the return on investment (ROI). What is the return for every dollar we invest in the dealership?

Whenever we buy a car, recondition it, prep it for delivery and then advertise it for sale, we know the costs down to the penny. We know our precise investment in that single vehicle. We have to, in order to make a profit, but an interesting thing happens when we start growing our business and hiring people to work and manage it. We stop looking at the money we spend as an “investment” for which we need to generate a return and start listening to excuses and reasons. We stop tracking the numbers. The fact is that every dollar spent is an investment that should generate dividends.

Dealers and managers must know what’s going on inside the workings of their dealerships in order to make informed and prudent decisions that actually improve sales, operations, and profitability. One of the most critical of these metrics is your closing ratio, the percentage of the customers who visit your dealership with the intent to buy and who actually purchase a vehicle. Your closing ratio has the most direct and immediate impact on your overall ROI.

Take a look at the table below that compares the results using different closing ratios with the associated ROIs to achieve 50 sales. The table is based on the following assumptions:
• $30 cost per lead
• 10:6:3:2:X lead to sales ratios

• o 10 sales leads
• o 6 customer contacts
• o 3 set appointments
• o 2 appointments that show
• o “X” sales

• $2,000 average gross profit per vehicle sold

Closing Ratio	Leads	Contacts	Appointments Set	Appointments Shown	Sales	ROI	Ad Expense	Cost Per Sale
20%	1250	750	375	250	50	2.67	37.50%	$750
33%	750	450	225	150	50	4.44	22.5%	$450
50%	500	300	150	100	50	6.67	15%	$300

When you look at the numbers, it’s easy to see how difficult and costly it is to generate 50 sales with a 20 percent closing ratio as compared to a 50 percent ratio. And that’s assuming all of the other ratios are in line and your average gross profit is $2,000 per vehicle sold. If your gross is lower or any of the other ratios are off, the results will only be less favorable. So, what’s the solution? Calculate your numbers accurately and solve the closing dilemma.

Before a dealer ever considers opening a BDC or a call center, or farming out the work to another entity to help generate more traffic, he needs to meet the demand that is at his store today. Otherwise, the inefficiencies in the sales process will not be discovered, the sales team will become disheartened, customers will walk away unsatisfied, and the dealer will just be throwing more money down the drain.

The same holds true when dealers purchase Internet leads, hoping to boost sales. If you don’t manage the metrics and follow a set process, these leads will be an incredible waste of time, money and effort.Your sales staff will view them as garbage and pitch them to the bottom of the priority pile. Internet leads, BDCs and CDCs can be a great sales stimulant if they are handled and managed correctly. No matter how you look at it, the work has to be done. Prospecting and follow-up must be accomplished consistently. The difference between a 10-to-1 return on investment and a 3-to-1 return on the investment is most often due to managing the process.

The national average for converting purchased Internet leads into sales is roughly 3 percent, but almost every dealer with a set process for managing the leads will experience an 8 to 10 percent conversion rate. The reason for the difference is usually centered on a set sales process with 100 percent accountability for every lead. The rule to remember is based on five numbers: 10:6:3:2:1. These numbers represent a series of interrelated ratios with which you can measure and compare the effectiveness of your store at converting leads into sales. You can also measure and rate each lead source provider for quality.

Basically, for every 100 leads purchased, you should contact 60 legitimate prospects who are still in the market for an automobile. You should set appointments with at least half of those prospects for a total of 30 appointments set per 100 leads purchased. You should expect two-thirds of the set appointments to actually show up at the dealership and can expect to sell half of those who show up for an appointment. Out of 100 leads, 20 appointments should show and you should sell 10.

Remember, this is just a rule of thumb, and these numbers will vary month to month and from dealer to dealer. The important thing is to track these ratios every month so that you can measure the effectiveness of your sales team and identify trends. The purpose for buying leads is to generate traffic. Unless you can convert prospects into paying customers, you are simply wasting your time and hard-earned money.

Let’s do the math and compare. If we factor the average gross profit per vehicle sold at $2,500 and the average cost per lead at $25, those dealers who experience a 3 percent conversion will generate $7,500 from the initial investment of $2,500. Many think that’s good enough, but dealers who convert 10 percent will generate $25,000 for a 1,000 percent ROI, and benchmark dealers will earn $37,500 from the same investment for a 1,500 percent return. Venture capitalists anywhere in the world would jump all over an opportunity that presented that type of return. Is it luck? No! It’s due to metrics, process and accountability.

In order to reach benchmark numbers, a dealer must religiously follow these five basic rules when buying Internet leads:

1. Track and manage the performance metrics weekly.
2. Diversify the number of lead source providers to at least two, preferably three, different vendors who perform well in your market.
3. Methodically adhere to the phone scripts for all calls made including those for which you leave a voicemail message.
4. Immediately respond to the prospect’s lead with a personalized e-mail followed up by the initial phone call.
5. Train the staff thoroughly on the sales approach and enforce a strict selling process for which there is 100 percent accountability for every lead purchased.

Buying Internet leads and opening a BDC or a call center can be very rewarding ventures that provide a much-needed boost to sales. However, if the people and the processes are not managed, the results will be the same as a small staff of lazy salespeople with their feet propped up, waiting for the “be-back” bus to bring the “good” customers to the lot. The ROI will be dismal at best.

There are so many dealers in the 3 percent club that there is plenty of room for improvement, and the customers’ demands are not being met. So many of these prospective customers have been contacted by unprepared, fast-talking salespeople that the special finance prospects have become jaded by the process and are very leery of car dealers. Any dealer who can offer a viable solution to the customer’s problem, and who can measure sales metrics and stick to a routine sales process with accountability, will absolutely excel and quickly eclipse the competition.

Vol. 2, Issue 2