One of the questions auto retail marketers often ask is, “How do I know if my marketing campaigns are delivering ROI?”
Unfortunately, the question doesn’t have a simple answer. Certainly you can track metrics to see if individual campaigns meet certain benchmarks or generate dollars. But how do you know if your overall strategy is working?
When I analyze marketing strategies, I focus on two primary areas. The first: how well you are communicating with your customers, which is measured by reach and frequency. The second: how well you optimize your strategy based on what you’ve learned from previous campaigns. This can be measured by looking at the following key performance indicators (KPIs): engagement rate, response rate and dollars generated.
The “reach” metric measures how many customers actually receive or see your marketing messages. If you’re sending an email campaign, how many email addresses in your database are valid? Ideally you want to reach 100 percent of your customers, but that would be virtually impossible for an email campaign: many customers don’t like to provide their emails, some emails become invalid, etc.
Instead, a reasonable benchmark for email campaigns might be 60 percent reach. If it’s lower than that, focus on improving processes in both sales and service to collect and update email addresses.
Because email campaigns typically don’t reach all customers, we recommend direct mail and phone campaigns. While 90 percent reach is a good benchmark for phone campaigns, direct mail is the most optimal way to reach your customers. Providing that your database is scrubbed and updated on a regular basis, you should be able to reach 100 percent of your customers when you use all three channels.
This metric measures how often you communicate with your customers via email or direct mail campaigns. Our data has shown that as frequency increases, response rates improve. Ideally you’ll communicate with each customer two to three times per month with either an email or a direct mail campaign.
Reach and frequency are important strategic KPIs to measure because they tell you how well and how often you are leveraging the information in your DMS.
Next, we’ll look at how you can best optimize your marketing strategy. The three KPIs offering the most guidance are engagement rate, response rate and dollars generated. These can be measured for every campaign sent out, but it’s important to also view them with a “big picture” perspective: how these KPIs relate to each other tells you how well your strategy is working.
This KPI is measured by adding the open rate and the click-through rate (CTR) together, and is only relevant for email campaigns. For example, let’s say you send out an email campaign for your service department. Your open rate may be 20 percent, and of those 20 percent, 10 percent will click through to the offer. Adding these percentages together results in a 30 percent engagement rate.
Some marketers measure the open rate and CTR separately. And using that same data, they’ll arrive at a 20 percent open rate and a two percent CTR, since two percent of total prospects clicked through. However, we have found that measuring these KPIs separately is not as predictive as combining them into an engagement rate. The engagement rate allows you to analyze how open rates and CTRs perform relative to each other—and as it turns out, this number is highly correlative to the response rate. So the engagement rate is one of the most highly predictive metrics.
When you analyze your engagement rate, looking at the ratio between the open rates and the CTRs is important. If your open rate is on the low side while your CTR is higher, you might consider a stronger subject line or different type of campaign. If the CTR is lower and the open rate is higher, it typically means the offer wasn’t strong enough or relevant enough to the person that received it.
Establishing a benchmark engagement rate for all dealerships and campaigns is very difficult, since every dealership, every brand, every campaign and every market are different. While a 30 percent engagement rate on a campaign might be great for your store, it’s really up to each individual dealership to set their own KPI goals.
The response rate, a good KPI to measure for both email and mail campaigns, reveals how many people responded to the offer in the form of a completed deal in sales or a completed Repair Order (RO) in service.
If you had a 30 percent engagement rate on a campaign, a decent response rate might be seven percent—although again, this can vary by segment. For example, a campaign to loyal customers should deliver a higher response rate than a campaign to lapsed customers, or those that haven’t been in for more than a year. Therefore, depending on the dealership and type of offer, a five or even three percent response rate may be good; however, a ten percent response rate is an ideal goal.
Finally, dollars generated is another important KPI: it measures the customer pay dollars generated in service and gross profit dollars generated in sales. While the response rate tells you the total number of ROs and deals, the dollars generated tells you which campaigns delivered the highest ROI in terms of profit.
Your DMS and/or CRM should be able to tie every dollar generated back to whether a customer received an email, direct mail or marketing phone call in the previous 30 days. You should also be able to attribute dollars generated to display advertising and search campaigns. Sometimes, of course, it’s a combination of marketing channels that delivers the best results: the “big picture” view may show that a prospect who engaged with more touch points generated more profits.
Analyzing these five KPIs will give you a good idea of how your overall dealership marketing strategy is working. However, it’s important to notice how each of these KPIs relate to and are affected by each other, rather than to quantify each individually. Eventually patterns will emerge, and you’ll gain a stronger awareness of the types of offers that appeal most to your customers and deliver the highest profits.