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Should Managed Chat Be Part of a Lead Acquisition Budget?

Lead Acquisition Budget: Are Managed Chat Service Providers A Lead Source?

 

I was speaking with an Internet Sales Manager a few days ago and we were discussing the budget she managed for purchasing leads from the traditional 3rd party lead providers such as Dealix, Autobytel, Automotive.com, CarsDirect, etc. The question arose as to which lead providers should be considered reasonably eligible for allocation from a budget category earmarked for acquiring sales leads. It was interesting to me that she seemed to consider AutoTrader.com to be a lead provider, when in fact, AutoTrader has never sold leads, nor will they acknowledge being in the lead selling business… AutoTrader has staked their business model around being an advertising channel whose media is focused on showcasing a dealer’s inventory. So, why do some people incorrectly list AutoTrader as a lead source?

 

The simple answer is that most of us will evaluate our results from AutoTrader based on the number of sales opportunities generated (Leads). Just because that is not what AutoTrader is selling, does not mean that leads are not what we endeavor to buy when we cut a big check each month to ATC.  This raises a few questions about Lead Acquisition budgets for car dealerships… When is a supplier considered eligible to being allocated budget from an Internet Manager, or Marketing Director managed lead acquisition budget? Which types of suppliers should be considered?

  

If there is one category of supplier that has created a whole new source of leads that did not exist ten years ago, it is the services offered by managed chat application providers.  These “Chat” apps can be placed on a dealer’s website, as an email link, on a dealer’s various blog sites and microsites, even in some cases on a dealer’s Facebook Page as well as other social media channels.  In almost every case, suppliers such as Contact At Once, ActiveEngage and CarChat24 will be evaluated based on the number of leads they generate for the dealership as a percentage of total chat sessions and unique visitors to the dealer’s websites, microsites, social media channels and emails opened.  The big difference between advertising channels such as AutoTrader.com and Cars.com, and the major Managed Chat Service providers is that AutoTrader/Cars.com et al has never embraced the leads generated model as their value proposition, yet the Managed Chat Service providers have… So, why would we consider AutoTrader/Cars.com a lead source, and not put the Chat providers in that category of expense?

  

While preparing this article I contacted Shereef Moawad [shereef@carchat24.com] at CarChat24 and asked him for some aggregated performance metrics around Managed Chat Service as a lead generation model. There are two reasons I reached out to CarChat24; the first is that they are the only Managed Chat Service provider that I know of which has worked for dealers on a performance based fee structure that used quantity of leads generated to determine the dealer’s cost for their software and services. The second reason is that CarChat24 has been a sponsor of the ADM Professional Community for longer than any other company, and I am very comfortable with their professional competence, business integrity and the objective validity of their data. Besides that, the company is run by a couple of US Marines (retired) with a remarkably clear focus on exactly what their mission is and the execution of tasks required to deliver measurable results.  

  

Shereef provided me with the following aggregated performance metrics and ratio analysis based on a randomly generated sample of 100 dealers and data collected over a six month time period:

100 CarChat24 Performance Plan Dealers - 6 months of aggregated data

Monthly Dealer Cost Range:

  • Highest Average Monthly Payment for Leads = $2,840.00
  • Lowest Average Monthly Payment for Leads = $85.00

Monthly Average Total Cost for Chat Generated Sales Leads = $489.92

Monthly Average Quantity of Chat Generated Sales Leads per Dealer = 32    
(Note: doesn’t include free service, parts, and query leads)

Monthly Average Cost per Lead = $15.31

 

Taking a look at the above numbers, it is easy to extrapolate comparisons with traditional third party lead providers from a cost/benefit perspective… Since the leads a Managed Chat Service Provider generates are not only exclusive, they are also coming from visitors to the dealer’s various websites and online assets. This means it is reasonable to say they should provide the dealership’s sales team with a higher closing rate than 3rd party leads which are usually being sold to multiple dealerships, and being churned to generate additional leads from the same customers. If the dealer is able to close these exclusive first party Managed Chat generated leads at a 10% average rate, then the resulting cost per sale, based on a $15.31 average cost per lead  is $153.10 Per Vehicle Retailed (PVR).  This is considerably less than the NADA average advertising cost per vehicle retailed (PVR of more that $600.00

 

Of course, we also had to invest advertising in getting traffic to the sites where the managed chat services are provided, but from a pure cost per lead perspective, the use of Managed Chat Services as a lead source looks very viable and fiscally prudent.  

  

It is worth noting how the average cost per lead came in at $15.31 for a performance based model that uses leads generated to invoice the dealership. Here is how that works… CarChat24 uses a variable cost per lead depending on the characteristics of the lead. This is based on the concept that certain lead types have more value to a car dealer.  In the case of CarChat24, the lead types and costs are:

  • Email Leads @ $10.00 each
  • Phone Leads @ $20.00 each (they usually get an email address as well)
  • VIP Appointment Leads @ $25.00 each (they usually get email and phone number, requires a set date and time to be at the dealership)

 

The average cost of $15.31 for the 100 dealers in our aggregate is the result of the following lead type averages:

  • 62% of Leads generated were phone leads
  • 31% of Leads generated were email leads
  • 7% of Leads generated were VIP Appointments.

 

When analyzing lead generation, there are always questions about whether or not these leads are “incremental” and do they come at the expense of other forms these very same customers would have used to contact a dealership if the chat service was not provided.  In almost every case, research and marketing studies have found that leads generated via Managed Chat Applications on websites are indeed incrementally additional leads.  In other words, the leads provided by Managed Chat Services do not come at the expense of the original website’s form fill conversion… They are a net gain in overall volume of leads the site is generating… It is safe to say that Managed Chat increases every web site’s overall visitor-to-lead conversion rate.

 

When the facts are considered and a performance based model is available, it is difficult NOT to justify allocating lead acquisition budget for Managed Chat Service Providers as a valid lead source. If you examine the logic in a little deeper detail, there is a strong case to be made that Managed Chat Services are NOT advertising and are in fact a lead generation source. You could even say that one of the outcomes from a dealership’s advertising should be increased chat sessions handled by your chat service provider, along with an uptick in leads generated.  So, consider allocating a portion of your lead generation budget to a Managed Chat Service provider… It makes sense and will help you generate more dollars of profit for your dealership by providing additional lead volume from the most valuable type of leads you can get… Exclusive First Party Leads!  

 

Views: 879

Tags: CarChat24, Chat, Internet, Lead Acquisition, Lead Acquisition Budget, Lead Purchase Budget, Leads, Managed Chat, Should, advertising

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Comment by Alexander Lau on April 4, 2013 at 9:45am

Ohhhhh... and the worst is when no one is at the other end of the chat mechanism. I have witnessed this countless times. It defeats the purpose of installing chat. That just pisses site visitors off and increases the probability of their total abandonment of your product, service and brand.

Comment by Big Tom LaPointe on April 4, 2013 at 9:43am

Ralph - great piece, as usual. Even before working with Shereef, I worked in dealerships that used CarChat24 services, and found the managed chat to be a valuable piece of the internet marketing pie. Also, in an era that requires dealers to have 100 percent on their OEM CSI surveys or risk losing funds or allocation, having a live response to a customer with an issue about a service or sales visit, can be EXTREMELY valuable. In fact, the service element is a valuable piece on its own, as many inquiries relate to the fixed ops side of the house, and this can frustrate sales team members who have to answer oil change or appointment questions when they would rather be focused on selling a car.

Comment by Alexander Lau on April 4, 2013 at 7:20am

Good statement Kelly. Totally Louie! It really just comes down to knowledge and being educated on the do's and don'ts, which is where you fine people come into place. :-)


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Comment by Kelly Holloway on April 4, 2013 at 7:18am

Ralph - this is exactly along the lines of what we have been telling dealers for years. Third-party sites will rarely generate the quality of lead that a dealers own website can -with chat or not. 

We just completed a 15-week study on a third-party site with 18 of our dealerships and we found that these dealers received an average of 6 leads per month from the third party site and 42 leads on average per month from our managed chat team . That is 7 TIMES THE NUMBER OF LEADS FROM THE DEALERS OWN WEBSITE!!! These stores also saw a higher closing ratio for our managed chat leads than those of the third party leads. 

I am not trying to say that Cars.com, AutoTrader.com and any other third party listing should not be used at all. They can bring some value to the dealership. However, the key here is to do the math!

Dealers need to be tracking sales all the way back to the origin of the lead. If you are not tracking how much you are seeing in ROI from ANY lead source - then I wonder how you are justifying spending $1000's in your budget on any lead source not just managed chat or third party sites. It is imperative that dealers are tracking the source of every sale they make. That way you know exactly how much your $1000's is making in the long run towards your bottom line. For those that are tracking this type of ROI information from every lead source you have, you probably have a very successful store!

Alexander - I completely agree that chat should be a compliment to a dealers website. We see that sites that are not user friendly or poorly designed usually get more chats/leads because the visitors can't find anything on their own. Our contracts are on a month to month basis so if dealer wants to add chat for a month and finds out they don't like it or it is not providing the results they were looking for, then they can cancel the service. I know there are some services out there that don't provide this option and for dealers that have never added chat to their site before, it can be difficult to sign a 6 month contract for something you have never used before. 

Comment by Andrew Compton on April 4, 2013 at 6:53am

The logic is sound.  The more communication options dealers provide online traffic, the more leads they will receive.  If the only option is a telephone number, I would bet the only lead would be a phone call.  As dealers add more options an incremental increase would result.  That is why we recently partnered with an online chat provider to offer chat free with our Craigslist tool.  Funny thing happened when the Craigslist traffic was offered a chat option.  That's right, dealers started getting a chat leads in addition to the phone calls and forms leads.  Sometimes the logical is not always obvious. 

Comment by Tony Rehn on April 4, 2013 at 6:34am
Great insight. The companies you referenced you would co consider to be industry leaders ?
Comment by Alexander Lau on April 4, 2013 at 6:20am

Good article.

Why not? A lead is a lead is a lead, in my book. As long as it's credible, who cares of it's generation method. However, a chat mechanism shouldn't compromise the overall performance of a site (long load time, annoying, non-intuitive / unusable, etc.). Is it really worth the risk? How many dealers or 3rd party groups test this before jamming it into their already poorly designed (functionally speaking) sites?

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