Advertising – every business does it, and its usage is paramount for success. But how well do we manage it? Advertising tends to be a significant expense for a lot of dealerships, and an important driver in sales. Using our Auto Dealer Business Intelligence (ADBI) report, we have started to see advertising expenses increase as the auto industry has rebounded from the pandemic. While some of this may be necessary, the question arises whether there’s more that dealerships can do to manage ad spend and improve an already tight bottom line?
Establishing Clear Advertising Goals
The first thing a dealership should do when initiating an ad campaign is to have a clear objective in mind. What is the goal of the campaign? Does the dealership want to generate foot traffic/awareness to an updated showroom? Does the dealership want to advertise specific models that might be more difficult to sell? Maybe the goal is to manage the dealership’s reputation in the community? The nature of what the dealership is trying to accomplish can significantly influence the types of advertising that the dealership should be doing. Regardless of what the underlying need is, it is vital to have a specific goal in mind to allocate ad spend accordingly.
Setting an Effective Advertising Budget
Once an objective is determined, it is important to establish a realistic and flexible advertising budget that aligns with your goals. While there is no brightline for an advertising budget, basing ad spend on relative volume is a good approach, either as a percentage of sales or a dollar amount per vehicle retailed. Factors to consider when setting up a budget include your specific goals, the competitiveness of the operating market, and the franchise of the dealership. If the market is hyper-competitive, you might need to have a larger advertising budget than an analogous dealership in a rural, less-saturated market. Additionally, if your OEM offers an advertising co-op, it is important to budget ad spend to take advantage of the program.
The budgeting process doesn’t just stop once an amount is initially set. It’s also important for the dealership to track expenses (to make sure you are meeting goals) and determine which channels have been most effective for generating sales. You may want to consider utilizing software and other budgeting tools to track and evaluate results. Once you have determined which channels have been most effective in drawing customer interest, you can allocate future spend to the most-effective campaigns and cut out expenses related to ineffective programs.
Optimizing Your Advertising Strategy
In addition to establishing a tangible goal and budget for your advertising, there are other tactics a dealership can employ to ensure that they are getting the most out of their marketing dollars, including:
- Targeted Advertising – Engage in targeted advertising to make sure you are advertising to the appropriate consumer base. If you’re advertising a certain model that is popular amongst a younger demographic, you might have better success with digital ads vs. television or print.
- Focus on Content Quality – Higher-quality content can help your dealership stand out from others. Invest in professional photography and video production for your ads. Make sure that your website is user friendly and appealing, particularly on mobile devices. More expensive, high-quality advertisements can have great benefits that make them worth the price.
- Community Partnerships – Build partnerships in your community. At the end of the day, most of your volume is going to be generated from your local community. If you have a strong community presence and can build a good reputation in the local area, it can have a positive impact on sales.
- Utilize a Third Party – In order to achieve your goals, it might be most prudent to use an ad agency, especially if you lack sufficient resources in-house to effectively advertise your dealership. If you do use an agency, however, it is important to make sure that you are effectively monitoring their performance as well. Are the leads the agency is generating good for your goals, or is the agency acting in their best interest? Make sure to challenge what the agency is doing, rather than relying on them.
While advertising expenditures can be a relatively large expense at a dealership, they can also be an incredibly effective means of increasing volume and ultimately help drive organizational success. However, it’s important to have a conscious objective and budget in mind when advertising. Shifting your mindset and looking at advertising as an investment, instead of an expense, can go a long way to ensuring that you’re getting the most out of your advertising at the right cost. Contact your financial advisor for important guidance on setting an effective advertising budget for your dealership.
Matt joined ARB in 2016, and became a manager in 2023. His work is primarily focused on auditing and accounting services for a variety of entities, particularly automotive dealerships and employee benefit plans.
