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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: 824

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

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Comment by Penny Vettel on April 10, 2013 at 11:39am

I leave my business card in a 'plastic business card display' in a local area restaurant, mine is sitting to the left of a sales guy that works at a used car lot up the street and to the right of a sales guy that works for a Ford store about 5 miles away. The restaurant claims to have 500 guests per day, and therefore 3,500 people see my business card per week...  That means 15,050 views of my business card per month. I leave 20 business cards per week and when I stop in to refill there's normally about 15 still there so that means 20 people take my car per month...

I could continue, but I think you know where I am going with this.  It's the equivalent to what an AutoTrader rep will show you when they visit your store with a report. "Your vehicles showed up 278,987,890 times in a search" (they don't mention that it was on page 25), "23,478 people clicked on your map" (they don't mention that is was for directions to your service department). And YES, I track this data for my dealerships that closely! My point is this; it's all branding, exposure, creating a presence (anything shy of putting your picture on every consumer's mantel).  That being said, I have gotten away from 'cost per lead' ad budgets, because what I really want to know is 'cost per quality lead' and that can't be calculated. I've in-turn tried to establish ad budgets that will accomplish a goal of maximum exposure. Consequently that's how AutoTrader wants to bill to me too, the less I pay/the less exposure I get. So they may not be a lead source provider but rather a broker of online exposure.. Either way, they have convinced us that without them we'll have to shut down our used car departments, so live with them we will. That's all I got on the AutoTrader topic.

Chat? I think it works marvelously in 'Support' environments but isn't so effective in 'Sales environments'..

Comment by Jason Mickelson on April 6, 2013 at 2:28pm

Another interesting study might be how many visitors you might need for chat to be viable.  Does CarChat24 handle chats on a performance basis regardless of the number of chats?  It will not take too many deals to pay for it. 

Comment by Big Tom LaPointe on April 6, 2013 at 4:28am

Why is 24/7 important? We all come to our positions in the modern business world from different paths. Mine has primarily been the luxury car arena. Off and on for a decade and a half, I have spent the bulk of my time in luxury dealerships and as a broker. In THAT market, buyers are often halfway around the world when they are calling, filling out query forms, or emailing about a sales or service matter. But even during my work with mainstream brands like Chevrolet and Dodge, we had leads coming during all hours of the day from shift workers and (VERY often) deployed military contacting us from all over the world - Germany, Japan, Afghanistan. They don't have affordable access to a phone, but a 'live' chat conversation is a HUGE step toward creating a sales relationship.

 

As for 3rd party or dealer staff operators - if you have been involved in a dealer group of any size, is the BDC REALLY ONSITE at ALL the points? Of course not. They have to check with the onsite management on availability and escalate complaints and concerns to appropriate parties whether they are around the corner or across the nation. I know a dealer group that opened a massive new showroom several months back, and the BDC staff have never been brought in to see it and can barely describe where the front door is. SCRIPTING, and effective responses are the key to successful use of CHAT, not necessarily the location of the operator. In fact, our operators are measured DAILY on upwards of a dozen metrics - and incentivized accordingly - to ensure they provide a world-class experience that rivals that of a luxury hotel chain. How many metrics do most stores use to measure their sales staff *in most cases* ? Maybe two - sales volume, and maybe CSI. Plus, most of our operators have been in place and continuously trained for years - compare that to turnover on most sales floors. Regardless of the structure, the value-benefit - ROI - of a quality managed chat software or managed service is one of the highest of any niche web service, as well as primary 3rd party lead source because it STARTS THE RELATIONSHIP, or helps protect an existing one.

Comment by Ralph Paglia on April 5, 2013 at 11:29am

Thanks for all the great comments... In response to a few of them; Competency is always an issue and one which will vary from one supplier to the next. For example, just because one Chat App supplier has a slow load time does not mean that dealers should not use an online chat app... Just find a competent supplier! In my opinion, the biggest real "Competency" difference I have seen among managed chat suppliers is primarily two areas of competency.

  1. The communication skills and knowledgeability of the staff used to represent the dealership.
  2. The back end software used by the chat supplier's staff while they are responding to a dealership's customers who initiate chat sessions.

Like most operational areas of the car business, if you put unqualified people in front of customers, then bad things happen... This is NOT dependent upon whether the people answering chat requests for your dealership work at the dealership or work for a managed chat service provider... Unqualified people are certainly plentiful when it comes to who dealers assign to manage chat requests, but less so for the managed chat service providers who specialize in doing that specific type of work.

Let me give you an example... I was at a Ford dealership in Colorado Springs a while back and the GM was complaining about his managed chat service provider. The company was converting plenty of chat sessions into leads, but the GM suggested they were not knowledgeable enough to answer service related questions coming from customers.  At a certain point we brought a service adviser into a small office and asked him to answer a woman's query about a noise coming from the left front end of her car when she was making right handed turns (sounded to me like a FWD CV joint issue). The Service Adviser responded to her "Lady, you need to get off the Internet and bring your car into our service department so a technician can check it out..." The woman's response was "F&%$ You!".

The GM backed down from his complaints regarding this Minneapolis based managed chat service provider (y'all know who it is) and I believe they are still using the company.  My point is that just because a sales person or service adviser is knowledgeable about the dealership's products and services does NOT mean they are qualified to respond to chat requests. 

Then there is the whole efficiency issue... When a managed chat service provider "call center" is operating, the chat agents are monitoring multiple dealership chat apps, answering one chat query after the next, sometimes more than one at a time. This is inherently more efficient than people at a dealership waiting around for a chat session to be initiated. Which brings up another point... Would you want a surgeon who does a couple of heart surgeries a year when needed to operate on you, or would you rather have a specialist who does several open heart surgeries a week and has a great track record of success operate on you?

As for the software that I have personally seen three different managed chat service providers use, this is what brings up the answers to a customer's questions as they are typing them into the chat text box the dealer has installed... Some of these apps use artificial intelligence to determine which chat agent responses have the highest likelihood of a lead being generated to determine the most effective chat agent response to a given customer inquiry.

Like many customer communication tasks, answering a customer's inquiry via online chat application is going to be more likely to generate positive results when the person assigned to do it specializes in that specific type of work and clearly understand's the dealership's strategy and tactical objectives for that particular job assignment... Whether or not that is handled in-house or outsourced does not change what works best for each customer.

Comment by Alexander Lau on April 5, 2013 at 5:46am

Agreed Matt.

Comment by Big Tom LaPointe on April 4, 2013 at 5:16pm

IF a dealership staff member can respond in less than 10 seconds to a query, AND they are well-trained, a store can be successful handling their own chat... BUT ... what about at 10 pm? or 2am? Then you're back to hoping they fill in a query form and wait until it gets queued up in the morning and that buyer may be in his own meetings by then. That's why we can also set up a hybrid arrangement to provide operator coverage during off hours.

Also, what about those stores that have had to close for one or more days due to bad weather? Hurricanes and snow storms wreaked havoc on business hours during the last 8 months through much of the nation. It's similar to the manufacturers paying spokesmodels to rep their cars at auto shows. A well trained proxy is still WAY better than a closed sign.


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Comment by Matt Stuemky on April 4, 2013 at 2:05pm

Chat services fill a need, and are much better than having nothing.  Personally, I'd much rather see a dealership employee responding in real time rather than a 'go between'.  My personal experience is that the majority of our chat sessions at my past few dealerships were initiated via AutoTrader or Cars, not our site.  3rd party chat providers won't engage those sessions.  So, the bigger issue is driving people to your dealership page for the best closing leads - whether you engage them yourselves or via a 3rd party chat provider.  :)

Comment by Alexander Lau on April 4, 2013 at 10:23am

Agreed Kelly. For the life of me, I do not understand how dealers ignore providing a dedicated process for Fixed Ops, especially when it makes them money. In some cases, more than they make off of car sales. 

Uhmmmmmmm...!?


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Comment by Kelly Holloway on April 4, 2013 at 10:20am

Alexander and Tom - you could not be more right about Fixed Ops. These areas seem to be continuously ignored by chat providers - yet this is where the dealer makes their money. We have found that 40% of chats answered, are related to Fixed Ops. 40%!! Chat should be a tool used to benefit all departments within a dealership - not just sales. We have to start thinking holistically not just what will benefit our department. 

Comment by Alexander Lau on April 4, 2013 at 10:02am

@Tom, this is why I have been preaching that Service / Parts should be a home page on its own. Much like http://www.cochran.com/service_landing. Not that it has a dedicated chat mechanism in place, but the page itself is completely dedicated to Service and Parts. I couldn't agree more and what's even crazier, how many dealerships make loads of money off of service and fail to recognize this!?!?!? Has to be huge...

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