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How to Track ROI on Digital Advertising

Conor-Lynch
Written By: Conor Lynch
Posted on February 14, 2019

In today’s fragmented digital marketplace, there are more ways than ever to spend on digital advertising. It seems with every passing day there’s a new mobile app, software application, or a shiny new gadget that promises to give you an edge over the competition. But if you’re like most of us, you’re looking at your digital advertising spending and wondering if the investment has really paid off? You’re not alone.

While technology has transformed the automotive business in ways we never thought imaginable, tracking digital advertising ROI often eludes even the savviest dealers among us. Increasingly, we as operators are forced to rely upon the expertise of outside help to interpret the results for us. If you’ve ever wondered what the ROI of your digital advertising spending is, try this exercise.

Isolate your top-five digital advertising expenses, let’s use Autotrader as an example and track the following:

  • How many total leads do you get from Autotrader per month? Let’s say 100.

  • How many appointments did you set from those leads? Let’s say 35.

  • How many appointments showed? Let’s say 26.

  • How many units sold from those appointments? Let’s say 15.

  • What were your total VDP’s? Let’s say 1500

  • What were your total SRP’s? Let’s say 15,000

  • What did you spend on Autotrader that month? Let’s say $10,000

  • What was your total front and back-end gross on those units? Let’s say $45,000

 

Visually, it would look something like this:

Now that we have this information laid out, we can break it down and find out where our money is truly going. 

Total Internet Leads: Let’s start with the number of total leads in column B, your Total Internet Leads. Most of us think we need to generate more leads, but before you go down that path and spend even more money, ask yourself, am I properly tracking and capitalizing on the existing leads I already have? If you think the answer is yes (or even if you think it’s no), simply perform a secret shopper exercise on your dealership. Record the timing, quantity, and quality of the responses. You might be surprised what you find out. If you are not able to capitalize on the 100 leads you have now, increasing this number will only highlight your inadequacies.

Appointments: How many appointments are you setting based on the number of leads? This is known as your Lead-to-Appointment ratio (column I) and it should be in the ballpark of 30%-35%. This is an important metric, and one that should be monitored closely, so it’s important to verify accuracy. A best practice is to have a manager confirm all appointments for the next day.

Appointments Shown: In column D we can see how many of those appointments “showed”, in this case, 26. When you divide the number of appointments shown (26) by the total number of appointments (35), we get our show rate of (74.3%) in column J. The percentage of appointments shown should be high, between 70%-75%. It’s important to note that this is often the place where the process falls apart, usually because of a poor turnover of appointments to sales people. Track your appointment show rate and appointment closing ratio by sales person and start holding them accountable, you might be surprised at who is turning away customers.

Units Sold: in our example above, we can see in column E that we sold 15 units. Out of 26 shown appointments, this gives us an appointment closing ratio of 57.7% in column K. You might be thinking that this is on the high side, but when you consider that these are online customers who showed up for an appointment, the closing ratio should be high! Typically, between 50%-60%. Our closing ratio based on the total leads is in column L. This is a hotly contested benchmark and varies based on many factors but decide what’s right for your store. I used 16% in this example which is admittedly ambitious, but if you’re still reading, you didn’t come this far to be average did you?

VDP’s and SRP’s: Otherwise known as Vehicle Display Pages and Search Results Pages, respectively. You should be able to extrapolate this data either from the advertising provider or from Google Analytics. There are many ways to interpret and leverage this data to your advantage, but for our purposes here, we are interested in our conversion rate. The conversion rate is how many of our SRP’s resulted in a customer clicking on a VDP. This shows in column N. We could dedicate an entire separate blog post to this, so without getting into too much detail, a good place to start is just tracking the raw data to see if your sales manager is using this data as a wider part of his or her digital merchandising strategy.

Average Cost per Lead & Average Cost per Internet Unit Sold: by inputting your total expense per advertising channel (column H) and dividing it by the total number of leads and number of units sold, we can see how much we are spending per lead and per unit in Autotrader. In this case we’d be spending $100 per lead in column M and $667 per unit sold in Column O for an average gross of $3000 per unit in column P.

Takeaways:

If this were your store, what conclusions would you draw based on this data? If this was my store, these would be my key takeaways.

Positives: For starters, the store is doing an excellent job of managing their BDC funnel by hitting almost every benchmark for appointments, show rate, closing ratio, etc. If nothing else, just getting an accurate tracking of these metrics is a great start and likely to result in several more unit sales per month.

Negatives: On the other hand, when you consider that this store is spending $10k to make $45k in gross, that’s 22% of the total gross, yikes!

Now, imagine being armed with this data next time you talk to your provider about renewing your contract. Once you’ve done this exercise with one provider, do it with your top five digital advertising expenses to get a better idea of the effectiveness of your digital advertising spending. Before you throw your hands up and cut ties with a provider, make sure that decision is intentional and backed up by data, not a hunch. Even if you track all this data already, it’s a good exercise to do with your department managers. You might be surprised at what is driving sales and what isn’t.

By doing this basic exercise with your top five digital advertising expenses, you should be able to get a basic idea of what’s working and what isn’t. If you have questions about managing the effectiveness of your digital marketing strategy, your BDC, or looking for innovative solutions to the unique challenges of today’s digital marketplace, the experts at NCM are here to help!

NCM Associates is capable of scheduling in-dealership consulting, hosting industry-leading automotive training, and providing dealers with a suite of benchmark and software solutions to help your team perform at their best.

1 Comment
Martin Dinh February 28, 2019 10:02 PM

As a NCM 20 group member, would I have access to that ROI calculation spreadsheet somewhere? If not, how can I get it?

NCM says: We can provide the spreadsheet to you! Your moderator will be in touch soon.

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