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Should Car Dealers Get Rid of 3rd Party Lead Suppliers?

Over the last ten years I have been asked by many dealers who have implemented successful digital marketing, online advertising and/or social media programs if they should get rid of their 3rd Party Lead Suppliers. The question usually originates from a desire to reduce the dealership's overall expenses.

In most cases, before I get that question we have already converted many of the dealership's marketing and advertising budget dollars from offline media towards being used for online media... Which is how we funded their new "Automotive Digital Marketing Strategy". Usually, we have used 80% of what we took from offline media for the dealership's digital marketing and social media campaigns, with the remaining 20% allocated towards cost reduction, so the net result up to that point has been a reduction in overall marketing and advertising expenses.

Let me state right up front, and this is my opinion, not a fact, but a strongly held conviction on my part:


I have personally managed teams where our overall average "Close Rate" was consistently over an 11% "Leads Received to Closed Sale" Ratio, yet certain 3rd Party Leads were being converted into sales at a far lower rate than our own marketing and advertising generated leads... 

The main problem I had at the time was leads we were receiving from Dealix, we also used AutoByTel, AutoUSA, iMotors (Reply!), Automotive.com, AutoLeadExchange, CustomerFunding, NewLeadsPlus from Cars.com and just about every other independant lead supplier willing to sell us leads at the time, in addition to the usual OEM sources... But, none of them seemed to be as much of a problem as the situation we had with Dealix.

Why? The volume of leads we were receiving from Dealix was high enough that the low closing ratios had a "Dilutive" impact on the overall department results. With over 300 Dealix leads coming in each month they were negatively impacting my department's overall numbers because the volume was high enough to drag down the average.

However, when I calculated results from Dealix leads from an ROI perspective, even though we were at 3.7% close rate on Dealix leads at the time, we were still netting a profit, so it was a very irritating situation for me and my team...

We were able to solve for this by isolating and then analyzing our results from Dealix leads, in a manner I believe most Internet Sales Managers working in Car Dealerships would benefit from in reassessing what to do with any 3rd Party Lead Provider. The analysis and reporting process I will detail is something that may or may not work in your store...

I will say right up front, this process is something I have seen work in many stores, but not in others, depending on how much the Internet Sales Specialists take the lead from beginning to end. In stores with BDC's, I find the following process to be less effective because of the greater consistency with which leads are handled.

Here's what I recommend that Internet Sales Managers and Marketing Directors take a look at, because regardless of what you end up doing, for about 30 minutes of research you can find out whether or not you can sell a dozen more cars a month per store simply by adjusting a few parameters instead of firing a lead supplier completely.

Here are the steps listed like a process work flow:

1. Pull each dealership's Lead Report for the past 24 months (or as far back as you have data) but filtered for ONLY the Lead Supplier in question's sourced Leads, sorted by Internet Sales Specialist. (Lead Source Report in BuzzTrack, WebControl and most CRM tools)

2. Export the report into a spreadsheet so it is easier to work the numbers...

3. Make sure you separate each salesperson into their own row or column.

4. Delete the rows (or columns) for each salesperson who has handled less than 100 leads over the past 24 months, or the length of time you had data available for that specific lead supplier.

5. Sort the remaining rows of Internet Sales Specialists by TOTAL NUMBER OF LEADS from the individual lead supplier that they handled over the time period the report is based on, descending from most volume of leads each salesperson handled to the least.

6. Save your Excel file, with that list on the first tab and then copy the tab, creating another worksheet tab within the same Excel file, name the first tab "ISSxLeads".

7. Rename the second Tab "ISSxSales" and sort the Internet Sales Specialists by Total Volume of UNITS SOLD from the supplier's Leads over the Data pulled time period.

8. Copy the second tab into a another worksheet tab (third tab) and title it "ISSxCloseRate".

9. In the third tab, sort the rows of Internet Sales Specialists by SALES CLOSE RATE, which is displayed as a Percentage equal to the number of Units Sold divided by the supplier's Leads assigned to them over the time period for the report.

MANAGEMENT ANALYSIS
Now comes the part where you have to study the numbers, ponder, study some more and think yet again... For example; if the ISS that appears at the top of the list for each of the three worksheet tab's is a different name, then you should reconsider your approach to those supplier's leads before firing the supplier... After all, why would any dealership be assigning the most number of leads to the salesperson who is NOT the top performer at converting those leads into sales?  

If your response is something related to, or about being "Fair", need I remind you about WHO IS PAYING FOR THOSE LEADS? That's right, if you want to implement a sense of "Fair" then try this on for size... As a manager it is your responsibility to allocate the most appropriate resources available that are most likely to convert a business opportunity into sales and service department revenue.  Fair is in the mind of the beholder, and if the $20 to purchase a lead is coming from my pocket, then I want you to assign the salesperson who is most likely to take that lead and generate some business... I simply do not give a rat's ass about who's turn it is or who got more leads than someone else... godammit, give the lead to someone who is going to sell a car!

Which, BTW, in my humble but experienced opinion, is why a dealership should AVOID COMPLETELY SEVERING THIRD PARTY LEAD PROVIDER RELATIONSHIPS!

Let me repeat that statement and guidance; NEVER COMPLETELY SEVER YOUR RELATIONSHIP WITH THIRD PARTY LEAD SUPPLIERS if the supplier is a legitimate business and has not engaged in deception, fraud or misrepresentation.

LESS IS MORE
Normally, I despise the cliche statement "Less is More" because it is the solace of choice for incompetent managers... But, if the lead provider in question is one of the majors, a legitimate company like AutoByTel, Dealix, AutoUSA, NewLeadsPlus, Reply! or AutoLeadExchange for example, it is almost always better to reduce the volume of leads you get from them by tightening up the distance radius from the dealership, and then restricting the leads you are willing to buy to those models that you have historically done a better job of selling. Put an underperforming 3rd Party Lead Supplier on a daily and monthly lead volume "cap" by tightening up the radius and models so that you are only getting leads from close to your dealership on models you do well with...

MANAGEMENT ACTION PLAN
What we did with the process above was identify that there were two Internet Sales Specialists with over a 10% closing ratio on Dealix Sales Leads, while the rest of the team was at about 1 to 1.5% over an extended period of time... After meeting with these two sales professionals, we learned they had a different process they used when handling Dealix sourced leads. 

We ended up routing all Dealix Leads to these two ISS's which meant that almost all the leads each of them were assigned each month came from Dealix.  Leads from other sources from these two Internet Sales Specialists' previous customers being the only consistent exception. 

Within a two months, our dealership's Sales-to-Lead Received "Close Ratio" on Dealix sourced leads went from 3.7% to over 7.5% on approximately 300 leads each month... OVER a 100% improvement in Lead-to-Sale Close Ratios! The bottom line was that for the same money being spent, we went from 9 or 10 units sold per month to a consistent 20+ units sold per month to leads from the same source, at the same expense without any additional cost.  The real kicker was that at first the Internet Sales Specialists who were no longer getting Dealix sourced leads were saying "Good Riddance", and after taking THEM off the Dealix lead routing, their individual sales went up as well!

"Wisdom I have learned at My Own Expense, while Compassion I have learned at the Expense of Others..." 

If there were only TWO management reporting and analysis processes that I could select as being identified as the most important and crucial methods we used to take Courtesy Chevrolet from an outstanding Internet Sales Management performance of 60 to 75 Internet Sales each month to over 350 units sold each month during the 2005 to 2007 time period, they would be the following:

1. "Intelligent Lead Routing" based on Optimizing the assignment of leads based on historical performance of each Internet Sales Specialist with leads from each source. However, I believe this process would work better if we could optimize lead routing based on each individual lead's characteristics, similar to the way lead scoring functions, but instead of scoring the lead, "scoring" each salesperson for likelihood of making the sale to that specific lead!

2. Reassigning all unsold NEW VEHICLE LEADS to the Used Vehicle Internet Sales Specialists as if it were a brand new lead when no appointment or activity is happening a week after the lead comes in... This was worth over 50 sales a month to 1,000+ new vehicle leads with no response from the customers after a week of emails and phone calls.

Another reason Car Dealers should never "fire" a 3rd party lead provider is because you can always raise and lower the volume of leads you receive each month based on your needs and the market conditions. After you fire them, this ability to adjust lead volumes each month by management discretion is completely lost. 

I have used lead providers where we cap them at 2 new leads a day, and restricting them to sending us only the leads they get from customers within 5 miles of the dealership.  This effectively reduces their Leads supplied (an invoice) volume down to about 25 to 45 leads a month... And then, if you were getting over 100 leads previously, a sales miracle seems to happen. The sales close rate skyrockets for that Lead Supplier... Strange but true!

Rather than firing any 3rd party lead provider, restrict the parameters for the leads you are willing to accept from them so that the volume of leads received from that supplier goes down and the quality, and sales close rate goes up.

That's my opinion, and this one I will take with me all the way, regardless of dissenting opinions from Steve Stauning, Layton Judd, or any of the other automotive digirati like them that like to disagree with everything I write!

Mike WarwickINSPIRATION: This post was inspired by the ADM Forum question posted by Mike Warwick at http://www.automotivedigitalmarketing.com/forum/topics/is-anyone-ha...

Scottsdale, Arizona
rpaglia@gmail.com 
office: 480-421-5005
cell: 505-301-6369

Tags: 3rd Party Lead Suppliers, AutoByTel, AutoLeadExchange, AutoUSA, Car Dealers, Cars.com, Dealix, Lead Suppliers, NewLeadsPlus, Reply.com, More…iMotors

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Replies to This ADM Discussion

Jeff,

I agree. I think sooner than later, third party lead providers will need to move their business model to a "pay for performance" model. There are newer applications/companies already in the infancy of getting their new businesses off the ground, while the traditional third party lead providers are still afraid (analyzing) to move their current business model to a pay for performance model.
Great Post Ralph!

I keep wondering where the OEMs and NADA have gone on this issue. The OEMs spend billions to create certify and market the product, the dealers have billions on private cap to represent it at the local level and I question why collectively they have not taken control of the lead generation side. it seems to me that the lead resellers are making as much or more than the rest of the links in the chain and they add zero value to the consumer, therefore raising costs...
After using all of these sources, we are currently only buying third party leads supplied by the manufacturers we represent. There was much duplication between the two (TPL and ManTPL) anyway. The leads that were unique were very low closing.
@Ralph
This is a timely post because I am doing research and analysis on third party lead vendors for an eventual whitepaper. I also agree with you that third party lead providers should not be thrown out because a dealer decides to start their own digital marketing initiatives.

One of the common perceptions of third party lead providers is that the combine a list of strong lead sources with poor lead sources to create a mix that dealers will tolerate. In theory, old school practices believed that this would increase the third party lead collectors revenue while still keeping clients.

I was recently discussing lead management processes with Dealix and when I posed this typical complaint, their response was interesting. They refuted this wide brush stroke of negative criticism and educated me on their Dealix Quality Pledge guarantee. Dealix stated that any dealer who feels that specific leads were poor quality (bad name, address, contact info) they can request a 100% refund.

Since this is the case with Dealix, there is no significant downside in my mind, in testing their leads and creating a process that keeps charge-backs in line with quality. According to Dealix, this feedback loop will help them police their feed sources and improve their delivery quality.

This is not pay-per-sale as some suggest but a promising middle ground. I think what dealers have done in the past is just stop by leads because they were not informed that they had a financial recourse. In this case, everyone loses.

I'm not sure of how many other lead sources have a strong return policy but it was refreshing to hear that if the dealer felt quality was poor, instead of bitching about 3rd party lead sources, they could refine the Dealix lead stream and make it better.

Dealix controls popular websites like www.usedcars.com (I wish I owned that site) so it would benefit dealers to understand that third party lead providers have rich national website assets that can produce quality leads. They also have relationships that might produce lower quality leads, but in the end, if you are not happy you can get a credit.

A strong digital marketing strategy includes the best of breed solutions from many consumer touch points. Kicking out all third party lead providers may be hurting you more than you know. A recent JD Powers study showed that consumers frequent 3rd party website often in the 6 months prior to a car purchase.

Car dealers just have to find the third party lead providers that will work with them to find the right cost per retail sale. Painting all 3rd party providers with the same brush is ignorant.
Hey Mike and all,
Saw this string and had to jump in here just to say it's real refreshing to see the respected guys that "get it" preaching to do a deep dive into their third party providers. Where your dealer is listed, what exposure you get on a particular site, any SEO benefit garnered from that listing, and the weight of the site in the consumer's view is paramount. Knowing that industry lead submissions are down, but third party traffic is up, the exposure side of the equation is more important than ever, not just the "lead". Looking into a "lead basket" and being able to breakout by provider will prove the old adage "Not all leads are created equal". Great stuff Mike. And once again Brian, you give insight way beyond the surface knowledge that most people make their decisions on.
Hope to see you guys in Vegas!
Johnny G

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