Does cost per lead matter to you?

[Jeff Kershner]

Does cost per lead matter to you?

I view a lot of reporting for dealers and one that dealers get hell bent on is cost per lead. But how much importance should we place on this metric?

Is this a metric you measure and if so, how important is it to you? How are you calculating it?

 

[JParks]

Hi Jeff, new member here. Seems like a great community...
Have long Lurked around, but never signed-up, so yesterday I finally did.
The information and learning here is excellent.

On to your post... Having been in the Lead Gen. and Handling space for years, I thing the general question is a valid one. Getting consumed on nickels and dimes will only distract you from respecting a valued part of the Sales process at most Dealers. That said though, most dealers today have a multitude of Lead Sources and from an efficiency point-of-view need to "some how" manage this multitude so they are aware of the well-performing and poor-performing sources.

Funnily enough, most Lead retailers will talk about a 'blend' of Quality vs. Quantity, and I think it is the 'quantity' part that serves as the MOST annoying to Dealers, both from a $ and Time perspective. But the formula otherwise, just distributing Quality, would not be tenable for the Lead Gen's sites out there. They need the revenue of reselling the poor-quality a few times over to aid profitability because the cost of only Quality leads would seem offensive to many Dealers.

The other approach would be to simply look at the total-spend on a Purchased Leads and compare that to revenue generated. If that number is good, then why worry. Except that human nature is such that the inevitable question is asked. Could I sell more with better quality, or could I save time with less poor-quality. This, I think, is the fundamental question that is actually being asked by most Dealers.

There was a post here from someone regarding Truecar "hater's" and his math seemed to show a very logical approach. You might 'feel' like you are getting screwed, but if the math says otherwise, you HAVE to ignore the emotion.

So to be succinct, I think that Dealers should worry less about the Cost-Per-Lead and focus more on the %-Leads-to-Close or TimeSpent-Per-Closed-Lead (but this deserves it's own topic of Metrics and 'how' to measure them). The reason I think this measurement is more important, is that it allows you to 'predict' the REAL cost per Lead, and helps take some of the emotion out of the conversation. Further, the Lead Gen market is saturated, the models are almost identical, the all sell that their 'mix' or 'formula' is unique, and so we need to measure performance different, since they themselves aren't able to actually differentiate.

Sorry for the blathering reply... I could talk about this topic on-and-on.

So, as a rookie member, I hope I haven't smudged, broken or stomped on any posting rules (I don't think I have ...) Or ruffled any feathers, that wasn't my intent.

JP.

 

[Bill Simmons]

The $64K question is, what is a lead? I don't mean that to sound silly. But is a walk-in that has the ATC printout in their hand a lead? It should be if it is sourced in the CRM properly, but that does not happen in a lot of cases. Right? It would be an important metric to me if I could get our phone and walk-in traffic sourced better. But to merely use it as a measurement for form fills and email leads, it could cause bad decision making to cut off a source IMO.

 

[Jeff Kershner]

Hi Jeff, new member here. Seems like a great community...
Have long Lurked around, but never signed-up, so yesterday I finally did.
The information and learning here is excellent.

On to your post... Having been in the Lead Gen. and Handling space for years, I thing the general question is a valid one. Getting consumed on nickels and dimes will only distract you from respecting a valued part of the Sales process at most Dealers. That said though, most dealers today have a multitude of Lead Sources and from an efficiency point-of-view need to "some how" manage this multitude so they are aware of the well-performing and poor-performing sources.

Funnily enough, most Lead retailers will talk about a 'blend' of Quality vs. Quantity, and I think it is the 'quantity' part that serves as the MOST annoying to Dealers, both from a $ and Time perspective. But the formula otherwise, just distributing Quality, would not be tenable for the Lead Gen's sites out there. They need the revenue of reselling the poor-quality a few times over to aid profitability because the cost of only Quality leads would seem offensive to many Dealers.

The other approach would be to simply look at the total-spend on a Purchased Leads and compare that to revenue generated. If that number is good, then why worry. Except that human nature is such that the inevitable question is asked. Could I sell more with better quality, or could I save time with less poor-quality. This, I think, is the fundamental question that is actually being asked by most Dealers.

There was a post here from someone regarding Truecar "hater's" and his math seemed to show a very logical approach. You might 'feel' like you are getting screwed, but if the math says otherwise, you HAVE to ignore the emotion.

So to be succinct, I think that Dealers should worry less about the Cost-Per-Lead and focus more on the %-Leads-to-Close or TimeSpent-Per-Closed-Lead (but this deserves it's own topic of Metrics and 'how' to measure them). The reason I think this measurement is more important, is that it allows you to 'predict' the REAL cost per Lead, and helps take some of the emotion out of the conversation. Further, the Lead Gen market is saturated, the models are almost identical, the all sell that their 'mix' or 'formula' is unique, and so we need to measure performance different, since they themselves aren't able to actually differentiate.

Sorry for the blathering reply... I could talk about this topic on-and-on.

So, as a rookie member, I hope I haven't smudged, broken or stomped on any posting rules (I don't think I have ...) Or ruffled any feathers, that wasn't my intent.

JP.

Thanks for joining us Jon. Appreciate the insightful comment.

 

[JessicaRuth]

The $64K question is, what is a lead? I don't mean that to sound silly. But is a walk-in that has the ATC printout in their hand a lead? It should be if it is sourced in the CRM properly, but that does not happen in a lot of cases. Right? It would be an important metric to me if I could get our phone and walk-in traffic sourced better. But to merely use it as a measurement for form fills and email leads, it could cause bad decision making to cut off a source IMO.

@Bill Simmons
Have you taken a stab at sourcing walk ins?

 

[JParks]

The $64K question is, what is a lead? I don't mean that to sound silly. But is a walk-in that has the ATC printout in their hand a lead? It should be if it is sourced in the CRM properly, but that does not happen in a lot of cases. Right? It would be an important metric to me if I could get our phone and walk-in traffic sourced better. But to merely use it as a measurement for form fills and email leads, it could cause bad decision making to cut off a source IMO.

Maybe my brain is overly-simplifying the question...
But a process for 'categorizing' ALL leads should capture this question. If your CRM supports assigning the Category, then the 'Process' starts with your Sales folks. Then at the end of the month any Up's that haven't been identified should be easy to find, as well as the offending Sales person who didn't follow process.
One of the additional wrinkles that could also be managed here, if your Sales folks comply, is you could track your Phone/Walk-in traffic that originated from your Website, or Cars.com or some other digital method.
That all said, this seems to be one of the very difficult challenges in-Dealership. For years the GM would love to know which Print, Radio or TV spot got the buyer off their seats, but even today, I am not sure there is a reliable tool to help with this.

As I re-read my post for spelling, a thought came to me. A request to your CRM/ILM that Prompts/Warns the user if the "How Did you Hear" field is incomplete. You could further push those pop-up's into the Business Office, as they could also ask the question. I also bet that a Business Manager who is always getting pop-up's will engage the offending SalesRep to do his job...
Maybe some small spiff could be used for compliance. (Just thinking out-loud... I know you guys have thought these ideas years ago. )

 

[Clay Toporski]

Cost per lead, to me, doesn't tell the whole story, so it isn't very relevant to me. Cost per sale, however, is much more important. Take the cost per sale and compare it to the average gross and now I have real actionable data that can help me make decisions.

Which would you rather have? 100 leads at $20 per lead or 20 leads at $100 per lead?

Now, what if I told you that the former closed at 5% and the latter closed at 25%? What if it was the other way around? You don't know that without digging deeper.

 

[JParks]

Cost per lead, to me, doesn't tell the whole story, so it isn't very relevant to me. Cost per sale, however, is much more important. Take the cost per sale and compare it to the average gross and now I have real actionable data that can help me make decisions.

Which would you rather have? 100 leads at $20 per lead or 20 leads at $100 per lead?

Now, what if I told you that the former closed at 5% and the latter closed at 25%? What if it was the other way around? You don't know that without digging deeper.

Ahh... But what if the 25% close takes you 15hrs each to close, but the other takes 2hrs to close? Never mind adding who in the Dealership needs to be engaged...(Hehe... Just adding complication to be difficult. But it's still a valid question.)

Ultimately, you are correct, in that you MUST dig deep to understand the ROI, but it isn't a simply Cost-to-Close ratio...Time spent is often ignored, difficult to track, but invaluable when trying to understand true cost.

The reality is that the 3rd party providers can only argue their value based on the ratio/formula you mentioned. It is on the Dealer to understand/measure the Time-Spent portion. And for this they need either a Process or Technology that enables this.

 

[Clay Toporski]

Ahh... But what if the 25% close takes you 15hrs each to close, but the other takes 2hrs to close? Never mind adding who in the Dealership needs to be engaged...(Hehe... Just adding complication to be difficult. But it's still a valid question.)

Ultimately, you are correct, in that you MUST dig deep to understand the ROI, but it isn't a simply Cost-to-Close ratio...Time spent is often ignored, difficult to track, but invaluable when trying to understand true cost.

The reality is that the 3rd party providers can only argue their value based on the ratio/formula you mentioned. It is on the Dealer to understand/measure the Time-Spent portion. And for this they need either a Process or Technology that enables this.

I hear what you are saying, although I have not found that I have ever had one lead source that took significantly longer to close than another. I'm not sure that I could imagine a scenario where there was an inherent property of a lead source that contributed to an abnormally long time to close.

I was going to write about it before, but I wanted to add that I don't really work with any 3rd party lead providers anymore - at least none that work on a cost per lead basis.

What I find I like to use this information for is to judge things like how well my paid search is working. I know that I am going to pay more for customers through paid search than through organic search - but how much is too much? At what point does my cost per sale outweigh the benefits of trying to attract new visitors to my site?

 

[JParks]

I hear what you are saying, although I have not found that I have ever had one lead source that took significantly longer to close than another. I'm not sure that I could imagine a scenario where there was an inherent property of a lead source that contributed to an abnormally long time to close.

I was going to write about it before, but I wanted to add that I don't really work with any 3rd party lead providers anymore - at least none that work on a cost per lead basis.

What I find I like to use this information for is to judge things like how well my paid search is working. I know that I am going to pay more for customers through paid search than through organic search - but how much is too much? At what point does my cost per sale outweigh the benefits of trying to attract new visitors to my site?

Good points, sounds like you are pretty familiar with the Search world... Always valuable to have knowledgeable folks available to the community.