By Josh Vajda
We recently conducted a survey in which we asked Internet department personnel to share some key metrics. In one question, we asked: How much total gross does your Internet department generate for every $1,000 spent on Internet leads from all sources?
The answers we received revealed that there is quite a large disparity between auto dealers’ return on investment (ROI) on Internet spending, as well as a surprisingly large percentage that don’t even know their ROI. So I wanted to know: what should a dealership target for a reasonable Internet marketing ROI?
One of the experts we consulted for measuring this metric was David Kain, President of Kain Automotive. He suggested that 5X ROI was the absolute minimum that a dealership should strive for, and ideally Internet departments should be seeing 7X ROI on their Internet spend.
But how do you calculate your ROI? Basically, ROI is what you get for what you spend. Here is a simple formula: (Gross Profit – Marketing Investment) / Marketing Investment = ROI.
This formula represents three steps.
1. Marketing investment should be simple to figure out as it is the total cost of a campaign. For instance, if you spend $1,000 per month on a Pay-Per-Click campaign, $1,000 per month on independent leads and $1,000 per month on a subscription site, then your total marketing spend on Internet leads that month is $3,000. For the sake of simplicity don’t worry about including labor costs (for staff), web site maintenance costs, etc.
2. Gross profit is the next metric you’ll need to figure. If you can pull the actual grosses on all Internet deals, that’s great. If not, take the number of sales and multiply it by your dealership’s average front and back combined gross profits. So if $3,000 in marketing spend delivers 10 sales at an average of $3000 combined gross, then your total Internet-related gross profit will be $30,000.
3. Next, you need to subtract the initial marketing investment ($3,000) from your gross profit ($30,000) for a total of $27,000.
4. Divide that number by your initial marketing investment ($27,000/$3,000) and in this scenario you end up with 9X ROI, an excellent result.
Why is it important to know your ROI? Any time you spend money on anything, whether on Internet leads or a marketing campaign, it is an investment. Like any investment, it should be measured, monitored and compared to other investments so you know where you should be spending your money.