Mojo Motors is not a lead generation company. We don’t believe it’s the best experience for the consumer or the dealer because it’s a poor measure of value. We’re all about building awareness around a dealership’s inventory through VDP views. Despite this, we are repeatedly judged on the quantity of leads that we provide to dealers, not the quality of those leads.
Dealers will sometimes look at their CRM and tell us they want more leads. I’ve tried to explain it’s all about the quality of lead, but it wasn’t until Digital Dealer 14 that I was able to point to specific reasons why. Thanks to Kevine Frye’s presentation, I can now prove why quality over quantity matters so much.
Kevin Frye (@KevinFrye1) is the eCommerce Director at Wyler Automotive Group and he gave a terrific presentation at Digital Dealer debunking many of the myths that are pervasive in the dealer world. He touched on a topic that we spend a lot of time discussing here at Mojo Motors with our dealer partners – the cost and return on investment (ROI) of leads.
Kevin pointed out that when most dealers calculate the ROI of the leads they buy, they almost always leave out a critical variable – the cost of labor. When you factor in the cost of labor, the ROI changes significantly.
Take the following examples with these key assumptions:
Cost per Lead: $25
Gross per Sale: $1,000
Closing Rate: 5%
Let’s say Awesome Automotive buys 100 leads for $2,500. Of those 100 leads they close 5 of them for a gross of $5,000. Here’s the simplest way of calculating ROI.
ROI = (gross-cost)/cost
So in this example:
ROI = ($5,000 – $2,500) / $2,500
ROI = 100%
This looks great but what Kevin pointed out is that this equation doesn’t factor in the cost of labor. What about the 95 leads that didn’t close? This was a huge waste of time and time costs money when you’re paying a staff.
Instead of simply calculating the cost of the leads that Awesome Automotive bought, we need to factor in the cost of the staff’s time. Kevin says that we need to attach a labor cost for each lead and he uses a cost of $30 per lead. Here’s the adjusted cost formula.
Adjusted Cost = Lead Cost + (Number of Leads * (Labor Cost per Lead * (1 – Closing Rate)))
So now, here is the adjusted cost.
Adjusted Cost = $2,500 + ($30 * (100 * 1 – 5%))
Adjusted Cost = $2,500 + $2,850 which equals $5,350
Now if we recalculate an accurate ROI taking into the adjusted cost we get following:
Adjusted ROI = (Gross – Adj. Cost) / Adj. Cost
Adjusted ROI = ($5,000 – $5,350) / $5,350 or
Adjusted ROI = -6.5%!
In this example, a lead provider that at first glance looked like it was providing great return actually has a negative ROI! Of course you can tweak the variables to fit your dealership but what this example so clearly demonstrates is that a large quantity of leads actually costs your dealership far more than the cost to purchase those leads!
Perhaps the most interesting point Kevin made was that once he made an adjusted ROI calculation and stripped out all of the low quality leads, the morale in his dealership skyrocketed. His team focused their efforts on quality instead of quantity meaning they sold more cars and everyone was happier.
Leads aren’t the best way to judge marketing partners but if you’re going to calculate the cost or the ROI of leads, make sure that you’re factoring in labor cost. Hopefully you won’t have any surprises.
Written by Turner Parlin
Photo credits: Viral Heat