Sub-Prime Lead Generation: are Infomercials really worth it?

Q. Can your dealership afford to be on TV?
A. Absolutely. There are affordable ways to get everyone on television. Sometimes we have to be a little creative, but we haven’t talked to a dealer yet that couldn’t make a TV presence on a shoe string budget. For example, I worked with a dealership in Kentucky a few years ago who generated close to 600 leads per month on a $2,500 budget.

 

Q. How much does a dealership need to spend?
A. This is ultimately going to depend on how many cars you want to sell. Each market varies on the cost of media time, and each special finance department closes different percentages of their leads. As a general rule, you can determine an initial budget by designating a cost per delivery ratio.

Example: A Midwest Chevrolet store spends $250/ unit on retail advertising and they currently sell 10 sub-prime per month off of floor turns. Now they want to increase the special finance department by 20 additional units, for a total of 30 units per month. Take 20 units multiplied by $250 and designate a preliminary budget of $5,000/month. In the first couple of weeks, you should be able to accurately predict the future cost per lead, and after a month or so, the department’s closing average. The budget should then be adjusted accordingly.

 

Q. What is the most cost-effective way to generate sub-prime leads?
A. In order to thoroughly answer this, first we need to break down the cost-effectiveness of some other traditional methods of lead generation.

• 60 second TV spots: We have found that, depending on the market size, 60-second spots tend to be a moderately cost effective way to produce a steady stream of leads each day. They can’t produce massive quantities of leads like an infomercial, however, for smaller dealerships; the 60-second spot is great for adding additional leads. Well placed, hard sell 60-second spots have proven themselves over time.
  
• Direct mail has been a tried and true method of generating about a 1% response. We’ve found the difference lies in the list. Who are you mailing to? Lists of pre-qualified credit parameters are available and may be more cost effective in the long run.
  Example: 85 cent mail pieces dropped 10,000/ month will cost $8,500. A 1% response is $85/lead. These may cost slightly more than infomercial leads, but often times the higher closing ratios make mail very cost effective.
• Print tends to be a fairly expensive way to get the phone to ring. Since most dealers are already in the paper for retail, they can tag each ad with a credit hotline for free. Typically, we will piggy back the dealers print budget by incorporating a special finance message in the ad design.
• The new dot com application sites are still growing rapidly and provide fairly inexpensive leads. Due to the nature of the prospect IF you have a dot com address with a credit application, you should tag all of your other media with it.

In my experience, still the most cost-effective way to generate a large quantity of leads is a quality sub-prime infomercial. In most markets, the response from 30 minute infomercials costs substantially less than the leads generated by print ads, direct mail, and 60 second spot television. If a dealer wants hundreds or even thousands of leads, an infomercial can provide the biggest bang for the buck. Just remember, not all infomercials are created equal.

 

Q. Does the quality of the infomercial affect cost effectiveness?
A. There’s an old saying, “You get what you pay for.” Sub-prime infomercials should be positive, upbeat, re-assuring, and constantly asking the customer for their business.
Example: If a better quality show produces just 20% more leads when run on the same channels in the same time slots, it will increase the response from 100 to 120 leads per week. With a 10% closing average, that equates to an additional $208,000/ year in profit.

 

Q. What role does placement play in the cost effectiveness of an infomercial?
A. The time placement of the infomercial plays an important role in controlling lead costs and keeping a special finance department efficient. You could have the best show in the world, but if no one sees it, no one will call. We have a few clients who place their own time, and do a good job based on cost per lead and total lead response. But these customers have a solid understanding of the sub-prime business and spend a considerable amount of time researching their markets. Working the stations, tracking the lead response, and tweaking the schedules is a time consuming endeavor. Most dealerships are not set up to effectively monitor the results nor do they have the time to invest in local market research. This can be compared to purchasing vehicles at the auction; some dealers do this by themselves, while others hire professionals to do the job for them.

With the number of credit challenged customers steadily increasing, the future in sub-prime holds more opportunity than ever before. If you really want to maximize your advertising dollars, hire a reputable automotive firm with sub-prime experience and purchase a proven campaign tailored to your stores needs.