BLOG FOR SPECIAL FINANCE CAR DEALERS
Advertising Budgets for Special Finance
How much should a car dealership spend on attracting the sub prime customer; 5,000 dollars per month? How about 250 or 500 dollars per sale? I’ve heard these numbers thrown around quite a bit and neither makes sense to me.
First let’s look at the fixed budget, say 5,000 dollars. What kind of growth can you expect by spending a fixed dollar amount each month? Not much right? Or on the other hand, if you sell only a handful of cars, your net profit is eaten up by the ad budget.
What about the fixed dollar amount per unit sold? I’ve seen averages and recommendations for this number toted in a lot of authoritative publications. I’ve also seen first hand, a dealer that spends over 1,000 dollars per unit and is extremely profitable, and other dealers that spend only a few hundred dollars per unit sold are getting killed. Why? Well in the first instance, the 1,000 dollar per unit dealer, closes hundreds of sub prime deals each month at well over 4,500 a copy, the later sells only a few at 2,000 per copy.
How does the law of diminishing returns apply to your ad budget? How much is too much. With your current personnel and our process what is your capacity to handle new traffic? When will the expected traffic from your ads show up at the store? Will it be concentrated over a short period of time, say a week or weekend, or will the traffic flow evenly throughout the month.
What is your baseline? How much sub prime traffic do you have right now? What type of customer does your current marketing effort attract? Probably not much if you’re a high line dealer in the suburbs, on the other hand, if you carry a more popular line in a major urban area, your natural sub prime traffic could be quite substantial.
You should determine your store’s baseline before spending money on additional advertising. How much traffic can you generate in-house, with your own efforts? And do you have the people, process, inventory, and lenders in place to handle this traffic.
Only after it’s proven that you can handle your stores natural traffic, without taking short cuts, should you spend additional funds on sub prime advertising and marketing.
So how do you increase traffic to your store without sending a lot of money? A road sign is, without question, the biggest bang for the buck. This is a simple sign displayed at your store that lets people know you will get the deal done, ours for example says, “Bad Credit, Buy a Car Here”. If you have a dynamic sign, vary the message weekly. Use messages like “$99 down program for low credit scores” or “Credit amnesty sale this week”. Zoning laws vary from city to city, so I’m not sure what they are at your store, but there has to be a way to communicate to your passerby’s that if they have credit issues, they found the right place.
You’ll also want to modify your existing advertising, especially for used cars, to mention your ability to help people with credit problems.
Most importantly, let your traditional customers know you are able to help people with bad credit. Most people with good credit have friends and family members that have credit problems, if they trusted you enough to buy a car, they will trust you enough to refer their friends and family. Tell them how great the service is and how you have been able to help a lot of people.
One of the most cost effective tools is the LotPro® bankruptcy list marketing system. This list is provided to you, along with three time tested letter templates, at no additional cost with most of our special finance lead programs. All you have to do is print and sign the letters, shove them in a window envelope, run them through a postal meter, and drop them in the mail.
The LotPro bankruptcy list is updated weekly with the names and address of people in your state that have filed bankruptcy during the week. Sending these prospects custom generated LotPro letters at 30, 60, and 90 days after their file date is extremely effective at generates sales. Utilizing this list weekly is not only easy to manage; it produces a steady stream of bankruptcy prospects.
In addition to the bankruptcy list, we provide two custom letters that you can send to the references your new sub prime customers provided as part of the application process. The first letter is a soft sell, it is sent immediately after the sale, and merely informs the reference who you are, what you do, and that they may receive a call from the funding source. The second letter is sent out 30 days after the first.
Now let’s revisit the question, How much should you spend to attract sub prime customers? I recommend limiting your spend to 10% of the previous months total special finance department gross profit.
If you sell two cars at 2,500 a copy your next months budget would be 500 dollars, if you sell 30 cars for 100 grand your budget would be 10,000 dollars. Where is the best place to spend this money? In my experience it is internet special finance leads. You get x amount of leads, for x amount of dollars and sell x amount of cars. There is no minimum spend.
These customers proactively went online and looked for a solution to their problem. They have bad credit and want to buy a car. Traditionally, dealers close 3 to 10 percent of internet subprime auto finance leads. It doesn’t get more predicable than that. And what’s really great is you can regulate how many leads you get a day; again, creating a steady stream of prospects through the month.
March 10th, 2010 at 3:03 pm
Hi. I happened upon your website while I was looking for something else. While I do not agree with some of what you posted we do have similar viewpoints by and large. I’ve bookmarked your blog and may visit again in the near future to see what you are talking about in 2010!