If you ask a dealership GM or controller “What’s your marketing per vehicle retail (PVR)?” not only will you get a precise answer, but likely a dissertation on the drivers, trends and plans to optimize. That’s because auto retailers understand that marketing efficiency and effectiveness is the lifeblood of their new and used vehicle departments.
However, if you ask the same GM or controller “What’s your service marketing per repair order (PRO)?” at best you will get “That’s a good question!” More likely you will get a blank stare.
I have never seen service marketing PRO on any monthly operating report. In fact, most dealers don’t break out service marketing from sales marketing in their PVR calculations, which contributes to the perverse behavior of cutting back on service marketing when sales decline to achieve PVR goals.
The implication is that most dealers aren’t managing the marketing budget that drives half of their stores’ profitability against an objective, results-oriented benchmark.
Most dealerships’ service marketing budgets are based on historical norms or the co-opable portion of the OEM owner retention program (ORP). Dealers may calculate the return on individual campaigns, e.g. how many ROs did the fall tire campaign produce? But few dealers compare their total budget against the total business it supports.
Calculate Your Service Marketing PRO
What should your store’s service marketing PRO be?
First, let’s reformulate sales PVR from a number to a gross margin percent, which I believe is a more relevant perspective, since my bank does not allow me to deposit vehicles, only profits.
In addition, I should be willing to spend more to sell a Mercedes than a Nissan. According to the NADA composite, the average marketing PVR is $547, which represents 28% of vehicle gross profit including F&I.
Given the average RO gross profit is $179, an equivalent investment level would be $50 per RO, compared to the average current marketing spend of $2.43 per RO today. That’s a 20X increase in service marketing budgets!
I admit that given Affinitiv’s business, this comparison may seem self-serving, but that doesn’t make it less true. Some dealers push back saying the comparison isn’t valid because many of their ROs—particularly warranty ROs—would come without any marketing.
The same argument could be made in sales, yet we spread marketing over loyal and conquest sales equally.
More importantly, we need to recognize the recommended investment level is consistent with Independent Repair chains who are typically investing 4-6% of their revenue in marketing. At 4-6% revenue, the equivalent spending per RO would range from $15 to $25, or 6-10X greater than the current spending!
Like all benchmarks, this is a guideline to establish a budget level, but it doesn’t tell you how to most effectively spend your money.
The Four Pillars of Service Marketing
Successful service marketing is built on four key pillars, including:
- Execute a comprehensive (ORP)
This means addressing your units in operation (UIO) with the appropriate “reach x frequency” to drive behavior. It’s critical to not cede a single customer to independents. While it may require different tactics to attract distant or off-brand used vehicle customers, there are strategies that can yield results.
Success requires an omnichannel approach for two reasons. First, dealers don’t have accurate, complete data on all customers, so a single channel approach can’t provide comprehensive reach. Second, today’s consumers’ fragmented media habits make it impossible to achieve the required frequency through a single channel.
Finally, dealer communication must go beyond soliciting regular service intervals to include tailored campaigns that address all fixed ops profit centers – e.g. replace wear items, repairs, collision and recalls. Additionally, marketing must sometimes provide valuable ownership information or demonstre appreciation.
- Emphasize moments of truth
While ORPs need a comprehensive communication plan, this does not mean every touchpoint is of equal value and hence not each should receive equal investment.
Among the most valuable touchpoints are declines, first service appointment, last within warranty service and first post warranty service. Given the importance of these touchpoints, we recommend dealers invest in more channels and creative offers to drive incremental visits.
- Close process leakage points
Marketing alone cannot drive incremental service. Dealers must plug key leakage points between consumer intent and service completion. Inadequate appointment capture due to poor technology or coverage can be addressed through an outsourced BDC.
Dealers also need to check online scheduling set ups to ensure maximum available hours and enough information, such as pricing, to encourage scheduling.
Website content must be current and useful to prospective service customers. Few dealers match the operating hours of their independent competitors.
Finally, dealers must encourage more complete multi-point inspections (MPIs) and invest in technology to present professional and timely additional service recommendations (ASRs) to waiters and drop-off customers. Addressing these operational issues will dramatically improve return on investment.
- Conquest to replace and grow
Even with the best retention efforts, every month some consumers will defect. In a flat market, new vehicle sales won’t replenish inactive VINs sufficiently to grow the servicing UIO base, so dealers need a strategy to constantly replenish its customer base through conquest.
Service pay-per-click (PPC) is a critical part of this strategy. Dealers need to invest in PPC because this is where Independents are stealing the dealers’ customers. As evidenced in search results, dealers are being dramatically outspent. Direct marketing from third party lists must also be part of the strategy, but keep in mind not all lists are equal.
When allocating a total service marketing budget, we recommend dealers fund the basics in each area and then tailor incremental spending based on their individual performance gaps. For example, ensure that all known owners are contacted across enough channels to assure an acceptable “reach x frequency” to drive impact.
Next, emphasize Moments of Truth with increased attempts and/or channels. Before investing in more expensive conquest activities, we recommend plugging the largest leaks to maximize ROI on conquest activities. After all, there’s no point in pouring more water into a leaky bucket.
Once operations are streamlined, conquest will be more productive and should become a consistent, planned activity funded based on retention success, store growth goals and investment appetite.
Author: Scot Eisenfelder
Scot Eisenfelder is a 25+ automotive market veteran who has driven innovation across multiple auto sectors. Previously, Scot was Senior Vice President Strategy at AutoNation, responsible for major change initiatives in eCommerce, pricing, IT and creating a blueprint for auto retail transformation and before that served as acting CMO, focused on realigning marketing spending. Before that, Scot led JM Family’s dealer software business and was Senior Vice President Product Management, Strategy and Marketing at Reynolds and Reynolds, leading both companies through value creating sales. Scot is a Board member of Quorum, a public dealer software company. He has an MBA from Wharton School, graduating with distinction and is a Palmer Scholar. He attended Mannheim University in Germany as a Fulbright Scholar and graduated summa cum laude in Economics from Princeton.