My team and I recently concluded a large number of spend assessments, across many dealerships, in various cities, under various ownership structures. We interviewed many dealer principals and CFO’s as a routine part of our process and as such, I closed each executive interview as I normally do with a singular question asking…“What is the greatest challenge you face on the expense side of your business?”
While the response varied somewhat, there was a common theme across the spectrum of dealerships we talked to that I first noticed about 12 months ago. The concerns that dealers and CFO’s mentioned most often had to do with their own marketing strategies and corresponding digital marketing costs.
Three critical dealership questions
The three common questions or issues dealers are grappling with based on our interviews really boiled down to the following:
- What should my marketing and advertising strategy look like? (what do we need?)
- Who should I partner with?
- What should I pay?
I have to admit that in our eleven years of dealership spend management experience, I have had many of the same questions from a sourcing, pricing and supplier perspective. While we are able to identify the suppliers and the annual spend in our spend management process, there were too many unknowns for us to venture too far into the marketing, advertising and digital marketing space. The more requests we had for assistance in that space however, the more convinced I became that there was a problem in search of a solution and we needed to get to work. That was about 12 months ago.
What we see – validating dealer concerns
Extracting twelve months of spend data for our assessments provides us with a pretty complete picture of the dealership supplier base and the money they spend for goods and services that support their business. Examining the supplier base is also helpful in understanding strategies employed by the Dealership.
Annual marketing spend
Our benchmarks are updated annually and are based on various top line revenue numbers in a dealership. Some examples of advertising and marketing spend by revenue points follow below:
|Annual revenues||To $25MM||To $50MM||To$75MM||To $100MM||To $200MM|
The supplier base is typically quite large in these spend categories which reinforces the issues that dealerships are bringing up. While we don’t have supplier benchmarks for each revenue point, we have seen a low of 15 suppliers to a high of 150+ suppliers providing key services in the advertising/marketing space. How could that be? Why would dealers need that many suppliers to support the marketing side of the business? The answer might be found in the next bit of research we concluded.
Marketing expense categories
StrategicSource embarked on a project late last year to identify and categorize various sub-categories within the advertising and digital marketing space. If we were going to help our clients rationalize this area of expense we needed to understand the various services by categories. Our results were surprising. With the help of marketing experts we identified at least 32 unique expense categories – unique services within the marketing and advertising lines used by dealerships. These sub-categories include SEO, CRM, print, reputation management, television, radio and many, many more. Of the 32 expense categories, our experts were able to define approximately 14 unique categories that were essential to most dealership operations. So, of the 32 expense categories, 14 are essential and 18 are optional or nice to have? This reality could certainly explain the first critical question that was asked…“What should my marketing strategy look like?”
All we have done up to this point is really understand and validate the frustration and confusion that many dealers are facing today:
- Annual spend of $200K to $900K for advertising/marketing expenses.
- Supply base that ranges from 15 to 150+.
- 32+ marketing sub-categories to investigate, source, price and contract for and manage.
- Some marketing services are essential, many are optional.
In addition to the three critical dealership questions, there are also increasing costs, a changing environment, changing technology and the plethora of suppliers to manage. Additional risks or questions to be aware of:
- Redundancy – How many marketing suppliers provide over-lapping services that you currently pay for?
- DMS overlap – How many of the marketing services currently paid for overlap with existing DMS Marketing functionality?
- Co-op reimbursement – What marketing expenditures are eligible for co-op reimbursement?
- Tactical vs. strategic approach – Is there a coordinated marketing strategy driven from the top that is well integrated and strategic? Or is the current strategy highly tactical, fragmented and is developed by various Managers in the organization?
- Buying what you need – Suppliers today are highly sophisticated in their service offerings. You can typically select services that range from the basic (bronze) to the platinum (everything included). In the spend management language specifying what you actually need versus what the supplier wants to sell you is imperative to holding down your costs. Driving a great price with a supplier has little impact over time if you have subscribed for services you don’t need and/or won’t use.
- Don’t mess with success – If the current marketing strategy is working and you are making plan, you probably don’t want to re-invent your strategy. But, that doesn’t mean you have optimized your costs. There is probably some fat, over-lap and additional expenses that can be taken out of the business without compromising you overall strategy.
Suggested next steps
This topic can go on for many more articles as I am learning, but let’s focus on what can be done within your dealership today.
1. Spend data – Generate a report from your DMS that will identify any marketing related suppliers you currently use, and how much you have paid them over the past 12 months. If you pay some suppliers by credit card, gather those names and annual amounts as well. Roll that data into one file.
2. Analysis – Review the suppliers and the services they provide with your sales team to answer the following questions. Now is also a good time to try to classify or categorize your suppliers by the services they provide.
- Are we benefiting in some measurable way from this supplier relationship? If not, you might want to find a way to prove the ROI or reconsider your strategy.
- Are the services provided by this supplier also provided by another supplier under contract? If so, you have an opportunity to reduce costs and eliminate waste.
- Is the supplier pricing competitive? Talk to friends, 20 group members and peers to compare pricing and terms of your services and re-negotiate where necessary.
- What is your ROI? ROI can be computed based on cars sold (new/used) parts, ROs written, to determine the ROI of your overall strategy and supplier relationship.
- Benchmark – Again, with friends, peers or 20 group members find out at a 50,000 foot level how your benchmark costs compare to other high performing, profitable dealerships.
3. Develop or revise your marketing strategy – With the newly created spend data, and a categorized list of suppliers, with ROI, and fresh benchmarks, you are in a pretty good place to either develop or refine your marketing strategy to drive top-line sales efficiently and effectively.
Marketing costs are an essential part of your business…..driving your top lines sales and keeping the doors open. But do you really know what you need? Do you really know what obligations and services you have in place today? Do you know who the most effective and cost efficient suppliers are? And finally, what is a competitive price for those services you purchase?
You may be blowing the doors off with sales, but that doesn’t mean your costs are in line or your business is operating efficiently. With a few key actions identified above and a bit of thought and analysis, you will be well on your way to rationalizing your Marketing costs and driving more efficiency into your business.
If you would like a spend management marketing tool that will help you with your analysis and strategy, please contact me via e-mail at: email@example.com. I would be happy to assist.