What Is Your True Cost of 3rd Party Leads?
By Brian Pasch
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?