This is the first in a two-part series on how big data will change the future of the automotive Internet business. You can read part 2 here.
Over the last 15 years the automotive Internet Department has gone through several significant changes as technology progressed and consumer behavior was analyzed. The auto industry embraced better descriptions, pictures and video. “Business Development Center” became the new buzzword. Manufactures implemented “Stop the Clock” practices to hold dealers accountable. Dealers invested in more technology and advanced the newest Internet “diet” that would sell more leads and drive their business to new heights. And after all that change, the average dealer is doing little better than they were when they started. The inside joke is that there are big BDC’s and small BDC’s but no old BDC’s. The fact that BDC’s are started, changed and stopped by utilizing metrics that have little to do with the overall effectiveness of the department, speaks volumes about the misunderstanding of the department’s overall mission.
Many dealers have subrogated their responsibility to the Internet Manager to grow the Internet business. What the dealer knows about driving consumers into their dealerships using print, radio and billboards is lost in Google Analytics, Facebook Likes and dealing with a consumer hiding behind an IP address. So Internet Managers are often times plucked from the ranks of the “most” internet savvy salespeople and are thrust into a position to take a department and make it profitable based on metrics which work for the more traditional showroom. The one responsibility of the Internet Manager and the Internet Department is to create one thing – opportunities. If you look up the meaning of that word it is described as “a set of circumstances that makes it possible to do something”. In other words the Internet Department’s main focus is to deliver opportunities or “Internet ups” to the dealership that the dealership has the chance to sell a vehicle to. Period!
Whether you implement a BDC or an Internet Department the objective is the same, how to grow the Internet business. The reasons most BDC’s fail to grow is and continues to be that the yardstick that is used to measure their success is muddied in the department’s overall responsibility. What to measure, and how? What metric or set of metrics can actually grow the business? Is there a way to grow the Internet department that is measurable and sustainable? The answer is, yes. What Conversica’s artificial intelligence software showed us after working over 8 million leads is that there are particular measurements which, when analyzed, can help increase sales, decrease marketing costs and most definitely grow your business.
Successful metrics depend on the understanding of what to measure. To grow your business you must first start with your lead provider choices. These providers supply you with the leads outside your own work to drive leads into your website. Of the over 100 lead providers available the ones you utilize should each be evaluated as to their true value including the effective lead cost. True value should be based not on gut feeling or other non-quantifiable metrics but actual definable metrics that you can utilize to make your decisions. Ironically the most-measured metric turns out to be the one measurement that actually brings the least value, close rate. The trap to avoid is measuring how many sales are credited to a particular lead provider. This is the easiest to measure but most unreliable. Closed sales are the measurement of past performance. It’s the measure of results that included many different circumstances coming together at precisely the right time to create the actual sale.
So then if close rates are a bad measurement, what is the best measurement? Lead Engagement. This is defined as the percentage of leads that actually participated in a volley or two-way communication after the initial lead was submitted. This can also be looked at as “opportunity”. The opportunity is a forward looking measurement that is more predictable. This is not to be confused with total leads. A lead provider which supplies 100 leads but only 35 of which ever connected with you after the initial lead would be looked at as having a 35% lead engagement rate. The 100 lead total was of little value, and taking into consideration how much work is required to chase after 65 leads that never engaged shows that low engagement lead providers can increase your work load and produce little to no rewards. And the fact is that after 100 years the auto industry has not significantly changed closing ratios. What can be increased is opportunities. The largest dealers in the country are the largest because they have the most opportunities not because they close 80% of the leads that come in.
Engaged leads may be hard to measure. Outside of solutions like Conversica – which measures this important metric – analyzing this will require a more manual process to gather this information. Utilize your CRM to gather total leads, and then your engaged leads can then be used to divide and see the engagement rate. After the lead providers are ranked by lead engagement percentages each can then be valued based upon the actual real value of delivering opportunities to the dealership. The more opportunities that are available to the Internet department, the more appointments can be made, which turns into more floor traffic. This is the one real way to increase sales – generate more floor traffic.
After lead engagement rates are calculated you can also figure out the ELC (Effective Lead Cost). This is the measurement used to determine actual marketing advertising spend from your lead providers. By taking the billed lead cost divided by the engagement rate the effective lead cost can be determined. An example is that a 50% engagement rate from a lead provider that charges $22 per lead has an effective lead cost of $44. And a lead provider that has a monthly charge of $2000 but only has an engagement rate of 42% would have an effective lead cost of $4762 per month. These effective costs will give you more insight into which third part providers you should fire and which ones you should buy more leads or increase your footprint from. Also, don’t be confused with “Pay for Sale” lead providers. These traditionally have very low engagement rates. You must determine the actual time cost of following up with leads who never respond. There is a real cost to chasing leads who never engage! The real job for an Internet Manager is to drive the most opportunities, via the most efficient use of marketing dollars, into the dealership. By doing this, you will drive the business forward and increase sales.
If you depend on the high tide of the overall market to drive your business’s growth, it’s time to change. The next era of the Internet Department is here and a new way to measure success and grow your business is now available thanks to big data’s view of millions of leads and over 100 lead providers.
For the rest of this story, you can read Part 2 of this series, The automotive Internet Department’s internal struggle to effectively handle leads.