Advertising can be one of the largest expenses for any dealership. Although not an exact science, there are some things you can do to make more informed and cost effective advertising decisions.
Where Have Your Dealership Advertising Dollars Gone?
by Dave Wiggins
It's our natural inclination to focus on review of expenses when times are bad. Even though times are good in the auto industry, if you were scrutinizing your advertising choices three years ago, you should still be doing it now — even though it doesn't feel like as high a priority as it was during the tough times. That's because advertising can be one of the strangest and largest expenses for any dealership. Some dealers will spend $30,000 per month, but have no idea if it is effective and giving a return on their investment. This is crazy. Although not an exact science, there are some things you can do to make more informed and cost effective advertising decisions.
Establish a baseline
Start by determining how much you currently spend on advertising and promotion. Look at your current monthly financial statement for these expenses to see how much you have spent so far in 2013. How does it compare to 2012? Do these expenses truly describe and recap the dollars you spent? If advertising and promotion expenses are not broken out separately on your monthly financial statement, make it happen this year. The break-out and year-over-year comparison will provide a benchmark for future spending. Next, determine how many vehicles you have sold year-to-date. If you take the total you have spent in advertising and promotion and divide it by the number of units sold, you will arrive at an average cost per unit sold. If you are a new car dealer, this amount may already be on your manufacturer’s statement. Complete this same process for 2011 and 2010 and take note of the cost per unit trend. Have you spent more or less than you did in prior years?
Set up your expense accounts
Once you have this information, dive deeper into the type of media where you spent your advertising dollars. If you do not have separate expense accounts set up on your general ledger, set them up now. This will make it easier to see where your money has gone by looking at your general ledger balances monthly rather than reviewing and recapping the detail in one advertising account.
I would recommend setting up separate expense accounts for each advertising outlet, such as billboards, radio stations, newspapers, magazines, internet, TV, invitational sales, and service promotion coupons, and then posting bills to the corresponding account. This makes it easy to monitor expenses and incorrect postings within your store. It also allows you to review trends on advertising outlets and compare it to sales increases for current and future months.
Budget
The big question is, what is your advertising budget? I don't mean the number you have in your head at the beginning of the month or when someone asks you. I mean a documented advertising plan and budget for the year. Yes, the plan may need to be modified as the months pass based on what happens to the economy, the models available for sale, used vehicle prices, and other factors. However, it is important to have a baseline. A formal plan will benefit your store by helping you make good decisions about your advertising investments.
You can also use your historic advertising spend to identify your current and potential media outlet market opportunities. Each media outlet has a target, reach, and unique frequency. Use this information to measure the effectiveness of your spending. For example, take the monthly media reach and divide it by what you are spending every month. Now ask yourself if it makes sense to invest that amount per customer for a potential sale. Are there other ways to reach more people?
Repetition builds familiarity
Look closely at the frequency of your advertisements. Repetition is the mother of retention. By establishing frequency in various media outlets you will notice people being able to recall or reference your campaigns. If you run an advertisement once or twice and move on to new ad copy and different placement, you are not spending wisely. To this day I can remember most of the ads or jingles used repetitively by the dealerships in my home area. Some have used the same theme for as long as I can remember. They have branded themselves, and in the process, branded me and you.
One final thought is to ask your existing and potential customers what brought them to your dealership — and track it. Not everyone will be able to list one thing that made them walk in your doors or visit your showroom, but you will get an idea of what is driving the traffic and how you can continue to use your advertising and promotion dollars the right way.
Many dealerships spend the same amount of money each month without questioning why they allocated that amount. You should be willing to experiment with your advertising approach, message, and placements. Don’t keep spending the same amounts with the same media outlets in fear of having a slow month because “you changed your advertising mix.” You can always go back to your original advertising approach.
While your ad reps can recommend program changes, it’s your responsibility to get organized, do your homework, plan your budget, and track your results. Take the time now to plan your future sales.
Dave Wiggins, Dealership Partner
david.wiggins@cliftonlarsonallen.com or 314-925-4300