by Terry MacCauley - Posted 5 months ago
In today's digital age, dealerships across the United States (and the world really) are constantly seeking ways to optimize their advertising efforts. Return on Ad Spend (ROAS) has long been a go-to metric for assessing the effectiveness of advertising campaigns. However, there's a real proven concern that an overemphasis on ROAS will be detrimental to dealership advertising results, scalability, and, ultimately, the dealership itself. Let’s delve into why putting all your eggs in the ROAS basket may not be the best strategy and how to explore alternative approaches to boost your dealership's advertising success, aiming for long-term growth and profitability.
Big-Time Pitfalls of ROAS-Centric Advertising:
A myopic focus on ROAS often results in a significant percentage (70%) of dealership advertising budget being allocated to short-term, high-ROI campaigns. Imagine a dealership allocating the majority of its budget to a short-term sale event campaign, which generates immediate returns but neglects the long-term brand building necessary for real, reliable budget planning and sustainable growth. The danger of short-term ROI campaigns is like sitting at your favorite casino game. When they pay, they feel amazing, when they don’t the consequences can be grave.
Research indicates that loyal customers can contribute up to 80% of a dealership's revenue over their lifetime. Let's say a dealership invests heavily in acquiring new customers without considering CLV. These customers may generate initial ROAS but may not contribute as significantly to long-term growth as loyal, repeat customers, especially when you don’t invest properly in nurturing those relationships with advertising and marketing.
An overemphasis on ROAS can lead to a disproportionate focus (60% or more) on acquiring a high volume of leads, potentially sacrificing lead quality. A dealership might opt for low-cost advertising channels that generate a large number of leads, but many of these leads may not be genuinely interested in purchasing a vehicle, resulting in wasted resources. Generating leads (interest) is part of any marketing funnel, but when circumventing the funnel and cutting corners, the results are not sustainable over time.
Dealerships that prioritize short-term ROAS often allocate only a small portion (15%) of their budget to long-term brand-building efforts. A dealership may decide to spend minimally on brand-building campaigns, such as storytelling and community engagement while ignoring the potential to build a strong brand that attracts customers over time. A business's value is not weighted on short-term it is better valued at long-term returns. Therefore, more people knowing about and trusting your brand has much more influence on any market as they become promoters and buyers.
A Big-Time Holistic Approach to Advertising for Scalability:
Dealerships should allocate budgets and resources for a balanced metric assessment, dedicating, for instance, 20% of their advertising budget to measuring ROI, 15% to CLV, and 10% to CAC (Customer Acquisition Cost). By distributing the budget across various metrics, dealerships can ensure that they are considering both the short-term and long-term impacts of their advertising efforts. Big Time Advertising always takes a dealer’s affordable budget and builds campaigns that are balanced for success today and in the foreseeable future.
Dedicate a significant percentage (at least 30%) of the budget to customer-centric strategies, such as improving customer service (especially including SALES SERVICE) and creating personalized experiences. By investing in exceptional customer service and personalized marketing, dealerships can build strong relationships that lead to repeat business and positive word-of-mouth referrals.
Allocate a reasonable portion (25%) of the budget to content marketing and branding activities that nurture the dealership's reputation and authority. Investing in high-quality content, social media engagement, and community involvement can always help establish the dealership as a trusted resource in the automotive industry.
Dedicate a portion (10%) of the budget to A/B testing and optimization efforts to ensure ongoing improvements in advertising strategies. At Big Time Advertising we are constantly investing in our dealer’s campaigns with various A/B testing strategies.
By consistently testing and optimizing campaigns, dealerships can adapt to changing market conditions and maximize their advertising effectiveness over time. We all know that market conditions can change quickly, therefore, dealers must be prepared to pivot at a moment’s notice.
While Return on Ad Spend (ROAS) remains an important metric for assessing advertising performance, it should not be the sole focus of your dealership's advertising strategy. Like an accountant, it ultimately records and reports what happened in the rearview mirror. Neither are meant to predict the future, change your gut feeling, or tell you how to run your business. Good metrics help, but an entrepreneurial spirit constantly looking forward historically wins the long game. An overemphasis on ROAS can lead to short-term gains at the expense of long-term success and scalability. Instead, adopt a more holistic (omnichannel) approach that considers a variety of metrics, allocates budget strategically, prioritizes customer relationships, invests in branding, and continually refines your advertising tactics. By doing so, your dealership can achieve sustainable growth and profitability while providing value to your customers and building a lasting reputation in the automotive industry.
At Big Time Advertising & Marketing we are a full-service advertising agency. We are a partnership that dealers deserve. If you are ready to have an advertising and marketing strategy that meets and matches your vision, then do not hesitate to get the ball rolling now. We would love to be your automotive-focused ad agency.
-by Terry MacCauley, Founder & CEO
