We have done extensive spend management work in the dealership space over the last 15 years. One of the biggest changes I have seen in overall dealership expenses has been the growth in the marketing expenses and the vast array of marketing strategy options available today. Marketing expenses as a % of total spend is growing, older more traditional advertising methods are shrinking, and the suppliers providing the marketing services are growing and now consolidating.
With access to a significant amount of dealership spend data over the years, we historically categorized marketing and advertising spend into just a two or three buckets. Three years ago we decided to do some extensive research on the actual marketing category options out there. We defined almost 50 categories at that time. It was clear then that we needed to perform a deep dive into the dealership marketing data to better understand what is happening. So we began collecting that data a couple years ago with the idea that we could help our dealership clients with benchmarking and pricing at a minimum. For the first time, we are providing some of our latest data on dealership marketing spend.
Dealership Challenge and Context
The digital marketing landscape continues to grow and evolve. New car sales are up nationally, overall dealership expenses are increasing, dealerships are tinkering with new marketing strategies and profit margins are shrinking from the latest NADA data and from what dealerships are telling us.. From my perspective the challenges seem to revolve around the questions we hear most often from dealers and their CFO’s:
- What should our advertising and marketing strategy be?
- Who(suppliers) should we use?
- How much should we pay for the service?
- What is the expected ROI for the service – or how do I measure return?
- How can our dealership pay for the increasing demand of marketing services required to be competitive?
Fresh Spend Data Reveals the Following
We recently completed an in depth review of dealership spend by expense category. We analyzed data collected from over 400 auto dealerships and groups…..large and small. Some of the key data points are as follows:
- Annual dealership spend(all supplies and services) ranges from 4%(larger groups) to 9.5%(single point dealerships) of total revenues
- Of that spend amount, 21% of the dealership spend is dedicated to marketing and advertising expenses
- There are 19 general categories of marketing spend, with as many as 50 sub-categories of marketing spend
- There are over 200+ unique suppliers of marketing services and products
- Most dealerships use an average of 30 or more marketing suppliers to support their organizations
- Most service providers use contracts to engage the dealerships
NADA Benchmarks and StrategicSource data
The current 2014 data provided by NADA suggests that the average dealership spends roughly 1.04% of sales on advertising, which includes internet, radio, television, newspapers, direct mail and other.
Our data would suggest that the NADA Advertising data could well be understated based on a narrow definition of expenses. The 1.04% highlighted by NADA is really closer to 1.33% using our data, when you factor in all of the marketing and advertising spend that is actually occurring. Putting this data into context……NADA suggests that Advertising expense for an average dealership is roughly $494K annually. Because we look at a broader array of marketing expenses in total, our annual total is roughly $660K, a $164K difference annually.
Impact to Dealerships – Where is it going?
- New car sales are increasing
- Overall dealership expenses are growing
- Profit margins are shrinking
- Advertising and marketing expenses are consuming a larger % of overall dealership spend
From our research, Dealerships are spending advertising and marketing dollars in the 19 categories listed below. The categories are listed in the largest to smallest % of annual spend. On average 21% of total dealership spend for supplies and services is spent for these services. Take a look at your invoices or contracts to determine what your monthly and annual costs are.
What You Can Do to Optimize Costs
StrategicSource is in no position to provide advice on your marketing strategy, that is not our competency. We do know of strategies and tactics however that can help you reduce or optimize your marketing costs. Suggested action items are as follows:
- Determine your actual marketing costs for your group to shed more light on your actual costs. This can be done with a detailed spend map
- With your team, try to identify and eliminate any unused functionality(services)you are paying for
- With your team , try to identify and eliminate any redundant or duplicative services you are paying for
- Narrow down your supplier base as much as possible. Many suppliers can provide one or more of the services listed above…..leveraging that spend should help you reduce your costs
- Check your DMS agreement for unused functionality. Many dealers are paying for unused functionality with their current DMS provider.
- Renegotiate pricing and service charges with your marketing suppliers
Investing in Marketing to Build Your Business
It is obvious from NADA data, our data and anecdotal evidence that turning a profit at dealerships is becoming more challenging.More dollars are being devoted to marketing than in years past, but where are those dollars coming from? If a dealership wants to invest more dollars into marketing, where will those dollars come from?
Again, based on our most recent research the following is true:
- Dealerships spend between 4% to 9.5% of annual sales on services and supplies that support the business, depending upon your size and overall revenues
- There are roughly 106 expense categories that dealerships use for supplies and services
- 19 of those categories are advertising and marketing related
- 22% of total dealership spend is spent on advertising and marketing categories alone
- 87 Categories of spend is non marketing related…office, insurance, shop supplies, etc.
- 78% of total dealership spend is non marketing related(opportunities for cost reduction)
If you are looking for additional dollars to invest in your marketing strategies, to grow your business, the best place to begin looking are the remaining 87 expense categories, everything from office supplies, to insurance, credit card processing, shop supplies, insurance, etc. If expenses are optimized, and cost reduced, this effort can fund new investments in marketing or…be deployed to your bottom line as additional profits.
Remember, cost reductions come from a number of sources including price, which everyone thinks of first. Process enhancements, elimination of the service altogether, elimination of redundancies, reduced supplier bases all contribute to cost reductions. In other words…..driving efficiency into your organization can fund your investment in growth or help you maximize your bottom line profits.
Marketing expenses are growing as a % of total spend in most dealerships. The array of marketing services required to stay competitive are growing. At the same time, overall expenses in most dealerships are growing and margins are being challenged. Marketing expenses should be understood in their detail and optimized to control the expense and maximize ROI. Dealerships need to face the reality that marketing expenses will continue to grow. The way to pay for these costs is to optimize the marketing expenses and/or reduce other expenses to preserve the bottom line. Those desiring to invest even more dollars in marketing should look at the other 87 expense categories to fund that investment. The development of a detailed dealership spend map will identify the actual spend by category and help prioritize efforts to generate new investment dollars or bring new bottom lines profits.
If you are interested in a dealership spend map template to help your planning, contact me via e-mail at: email@example.com.