Do you really need to cut back on marketing expenses?8 december 2023, Paul
That was the question I recently received from a dealership owner. After two prosperous years in used car sales, this year was indeed different, with a significant loss. Fortunately for this dealer, the service side of the business is better than ever, and new sales, boosted by the delivery of 2022 backorders, were also excellent. However, the challenge lay in the realm of used cars…
Firstly, he described that they had been lax, lax in the sense that money was still being made, and everyone thought things would be fine. After all, the past two years went well, thanks to effective processes in online car listings, lead follow-ups, and subsequent sales! Oh no, it was the market with high demand and low supply that resulted in those two prosperous years, but the process to accelerate or maintain this was lacking for this dealer.
Excessive Holding Time
This manifested in two issues: the holding time is too long, averaging 91 days online, plus an additional 12 days before being listed online, and then 7 days from sale to delivery. This means the car sits on the balance sheet for 110 days. With interest rates soaring, this suddenly became a problem. It already was a concern in the two prosperous years, but it wasn’t deemed significant enough to address. The preference was to sell the car 6 times with a €2500 profit rather than 9 times with a €2000 profit.
Low Conversion Rates
The second point is that the conversion from leads to sales is too low, making marketing expenses too costly in relation to results. So, cutting down on marketing spending—would that be a good move, Paul asked. Well, no! You cannot budget your way out of a problem. Ultimately, you need to sell more and faster to overcome the challenge of higher holding times and low conversion.
Canceling a marketing channel is not a good idea when the conversion is low. A basic conversion, especially for used cars from leads to sales, should always be at least 13%. If you don’t achieve that, it can never be attributed to the quality of the lead but always to the process of following it up. The sales manager who fails to direct and holds his salespeople responsible for a minimum 13% conversion is more interested in being friends with his sales team than holding them accountable for the minimum acceptable standard.
Because you need marketing to sell more, of course, if a dealer has been in a location long enough, they have a large customer base that can potentially account for 70% of their sales. However, to grow, you need more new customers, and these new prospects often come from online leads, calls coming your way. If you can only capture the low-hanging fruit because you’ve forgotten the skills of sales effort, then indeed, it might be better to stop marketing and wait for another two prosperous years when everything happens automatically. If you don’t want that, learn to help the marketer make their investment pay off and capture all the fruit!