Is Your Dealership Spending Too Much on SEM?

by David Farmer on November 12, 2015

 
 
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Industry experts say that today a dealership should dedicate 50% or more of their total marketing budget on Digital.  
While we agree with that, the problem that dealers face is where to to effectively spend that budget.  It has been shown that dealer are overestimating the effectiveness of SEM and have been investing a majority of their digital marketing budget towards search.  

From a Cost Per Lead and Cost Per Sale standpoint, Search Engine Marketing proves to be an expensive solution for auto dealers.  
The average dealership website converts about 2% of unique visitors to leads, this number is reduced by about half when you look at paid traffic, totaling about 1% Lead to Visitor Ratio.  

If a typical dealer spends $500 per vehicle sold towards advertising, and sells 100 cars per month - The dealers advertising budget would be $50,000 and by dedicating 50% to Digital, equalling $25,000 and with 50% of the digital budget dedicated to SEM, in this example $12,500 would be spent on PPC.  For dealers today, most would agree with us by saying that an average CPC (Cost Per Click) is between $2 to $5.  By taking the lower number at $2 and looking at a Cost Per Lead - you would need 100 Clicks to equal one lead, totaling $200 cost per lead.  According to NADA - the average lead to close ratio is 8%, which we believe is low - but for argument sake let's say it is 10% - one out of ten leads closes.  
At these numbers a dealership would be looking at a $2,000 cost per sale which exceeds the average New Car Gross and would put you in a negative ROI.  
 
We at intice believe in SEMand believe that it is a valuable marketing channel and that every dealership should have a heavy focus on PPC, however - it we also believe that it needs to be part of a balanced approach to digital marketing including Search, Display and Conversion
Google Adwords provides a Keyword Planner tool, use this free tool to identify the amount of clicks that are available in your market area to help identify an effective automotive SEM budget. Also, look at your dealerships LTV (Leads divided by Visitors) if it is lower than 5% total you have opportunity to get more leads and increase showroom traffic and sales.
 
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Topics: Digital Marketing Strategies

David Farmer

Written by David Farmer

David Farmer is the Founder and CEO of intice, Inc., a technology company in the automotive digital marketing industry. An entrepreneur and pioneer at heart, David has a passion for the automotive industry, technology and marketing and has more than 20 years direct experience in automotive retail.