Fabien Vegas Corporation
A Little Math Applied to Third-Party Leads:

Why is it the close-ratio for auto dealer third-party leads is so low?

Buyer% = Q*CR

Q = average number of quotes each shopper receives
CR = average dealer third-party lead close ratio

Based on empirical evidence, the average number of quotes a shopper receives is 5, and the average (real world) third-party close-ratio for car dealers is .05. As such, it then follows that multiplying the total number of shoppers by a factor of .25 (5 x .05) will produce the total number of buyers, and by .75 (1 - .25) the total number of non-buyers.

Again, if the average (third-party lead) close-ratio is .05 and the average number of quotes received per shopper is 5, then the percentage of (third-party lead) shoppers that buy has to be only 25%; or, to put it another way, out of every 1000 third-party leads purchased by auto dealers, 750 of them will not result in purchases.

Because, to close 1 deal, 20 leads are required (.05 x 20 = 1) and if the average car shopper receives 5 quotes, then 4 shoppers = 20 quotes = 1 sale = 25% buyer%.

Why are 75% of third-party leads DOA? It really doesn't matter. The important thing to remember is the numbers are telling us (proving, actually) that these leads are mostly junk. (They also help explain why dealer website leads are always the most close-able.) Therefore, there's really no need to count leads, or count duplicates, or count bad leads - we only need to know what the averages are and the rest is easy. As such, based on the averages mentioned above, One should assume only a 25% close potential for all auto leads purchased and hopefully pay accordingly for same.

Furthermore, if the price of a lead is $20 and the average close-ratio is 5%, then the cost per sale for third-party leads equals $400. However, if the cost of third-party auto leads is reduced by 75% ($5 per lead) to account for junk, the cost per sale falls to $100.

Now, due to the above, consider that 75% of the initial communication work internet department CSRs perform is completely wasted. How much does that cost in dealer payroll and overhead? How much does this inefficiency add to the cost per sale?

Moreover, even if the cost per lead were drastically reduced, most auto dealers would still be employing crews of CSRs that are largely spinning their wheels all day.

Lastly, if there were a way to ensure only unique, qualified leads were sourced, the average close-ratio would skyrocket to near 20%; which, when applied to the formula would show: 100% = 5 * .20, or every shopper bought a car.

Summary:

One might try to negotiate a (much) lower cost-per-lead based on the above-mentioned data. For, if the averages are reasonable then 75% of leads purchased are unsaleable. Hence, a 75% reduction in per lead charges would appear in line.

Otherwise, couldn't you do better than a 5% close-ratio by reallocating that $400 per sale to somewhere other than third-party leads?

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