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|Published Date: September 5, 2024|4 min readHow to Maximize the Impact of Dealership Advertising Spend by Optimizing Conversions
When demand fails to keep pace with inventory, the typical battlecry of most dealers is: “We need more leads!” But generating leads - not to mention quality leads - can be an expensive endeavor month after month. When it comes to dealership advertising spend, you want to make the most of your dollars.In this article we take a look at how much dealerships typically spend on advertising, how that investment translates into leads, and how many of those leads actually become viable opportunities (for Covideo users it’s around 32%*). We also make a case for treating your precious (and costly!) internet leads with greater care so you can 1. Maximize your investment in advertising and lead generation and 2. Convert more of the leads you’re already getting into appointments. Let’s get into it! 
Monthly Cost of Advertising
The amount a car dealership spends on advertising each month varies significantly depending on the size of the dealership, OEM, its location, and its overall marketing strategy. The National Automobile Dealers Association (NADA) reports that dealerships spend 6–7% of their total gross profit on advertising, and in 2023, the average new car dealership spent $44,077 per month**. The bulk of that - about 72% - was spent on digital mediums, working to drive paid and organic internet leads. The remaining dealership advertising budget was spent on more traditional mediums like TV, radio, direct mail, newspaper, and other. Here’s the breakdown on average monthly spend for digital mediums:Monthly Spend per Dealership for Digital Advertising:
- Third Party Listing Sites: $9,124 (20.7%)
- Search Engine Marketing: $8,771 (19.9%)
- SEO Website Optimization: $8,595 (19.5%)
- Social Media Advertising: $5,333 (12.1%)
Monthly Internet Leads Driven by Dealership Advertising Spend
The number of leads a dealership can expect from their monthly dealership advertising spend can vary widely based on several factors, including the effectiveness of the campaigns, the competitiveness of the market, the quality of the leads, and the specific channels being used. To estimate how many leads a dealership can expect to generate from its advertising spend, it’s first helpful to land on an average cost per lead (CPL). NCM Associates estimates the average CPL for internet leads at $35***. Note that it’s best to determine your own CPL based on each medium and campaign. But for simplicity sake, we’ll use $35 as the CPL across the board. So, if a dealership’s monthly spend for digital advertising is $31,800 and we divide that by a CPL of $35, that dealership should end up with 908 internet leads that month. $31,800 (Monthly Advertising Spend) / $35 (CPL) = 908 Internet Leads NOTE: $35 may under-reports the typical CPL for dealerships as other sources say it can be as high as $150 (depending upon the medium, like social media, Google PPC, third party listing sites, etc.). Most dealerships will generate between 400-1,000 internet leads per month. Monthly Opportunities from Internet Leads:According to NCM Associates, car dealerships convert about 25% of their leads into appointments set (keep in mind this is different from actual appointment shows)***. So, if a dealership has 908 internet leads and sets appointments for 25% of them, they’ll end up with 227 viable opportunities. 908 (Internet Leads) x 25% (Appointment Set Rate) = 227 Opportunities This appointment set rate of 25% can vary based on factors such as the quality of the leads, market conditions, the effectiveness of the dealership's follow-up process, and the responsiveness of the sales team. While you can’t control the market or quality of leads you generate from dealership advertising spend, you CAN control your team’s follow-up process and the speed with which you respond. And it can make a massive difference. Now, consider how your dealership advertising spend translates to conversions. Dealerships that use Covideo typically see a conversion rate of 32% and shoot for a response time under 15 minutes (5 minutes is best-in-class). Meaning, if they receive 100 internet leads a month, they set 32 appointments. They do this by sending a video lead response as their FQR (first quality response) to each and every internet lead they receive. In this way, they’re able to provide a first-class customer experience that’s prompt and personalized from the get-go, set themselves apart from and ahead of the competition, and lay the foundation for a strong relationship with buyers. Check out this video from our Video Sales Journey Series for best practices and an example of a great video lead response that leads to more appointments booked:Conclusion
Continually increasing your dealership advertising budget to drive more leads can be an expensive, never-ending rat race. Instead, consider maximizing your advertising spend by developing and executing a plan to better care for the leads you’ve paid good money to generate. This will lead to more appointments set, trickling down the sales funnel to an increase in appointment shows and cars sold! If you’re looking to maximize your advertising budget’s impact by optimizing conversions, connect with one of our video lead response experts today. *32% lead-to-appointment conversion rate taken from Covideo case study conducted with Del Grande Dealer Group **NADA Data: 2023 Annual Financial Profile of America’s Franchised New-Car Dealerships ***NCM Associates Benchmarks: U.S. Key Performance Indicators for Variable OperationsMore articles like this
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