How Much Should Used Car Dealers Spend On Online Advertising?
[5 Minute Read] ┃ Author: FZ┃ October 12, 2022
Over 80% of car buyers are starting their car buying journey online. For this reason, online advertising is becoming a necessity for every car dealer to compete and grow.
That being said, not all online advertising channels are created equal. Depending on the type of vehicles you sell and where you are located, some channels might work better than others. And the amount you spend on those channels depends on a number of factors.
So, how much should car dealers spend on ads without breaking the bank? That’s what we’ll focus on today.
What Is Ad Budgeting?
Ad budgeting is allocating a certain amount of money for your dealership to spend on online ads for a specific period of time. Your ad budget depends on multiple factors that you need to consider:
- 1. Ad placement: Or the platform on which you’re going to run your ads. Whether it’s Google or Facebook, each platform has its own ways of calculating the campaign budget you need to spend.
- 2. Ad type: There are many types of ads, and knowing which one you want to run will give you an idea on how much you should spend. The average CPC for search ads, for example, is around $2.5, while it’s usually less than $1 for a display ad.
- 3. Campaign goal: Are you running ads for more visibility, more visitors or more leads? You need to know that lead generation campaigns, for example, are usually more expensive than traffic campaigns.
These are the most important factors that have a direct impact on how much you should spend. However, these values vary based on your location and how competitive your market is.
What Are The Methods to Determine Your Ad Budget?
According to NADA, in 2021, dealers spent more than 8 billion dollars on advertising, and nearly two thirds of what dealers spent went to online ads.
This is a huge investment. But how can you determine how much you should spend on your online ads?
You can use any of these four methods:
1. Percentage Of Sales
While using this method, your ad budget is simply a percentage of your last year’s sales. For example, if you decide that your ad budget is 2% of last year’s sales, and your dealership made $480,000, then your ad budget for this year is going to be around $9,000.
2. Available Funds
This one is commonly used by car dealers while setting an ad budget. It’s also pretty straightforward. This method is based on spending what your dealership can afford, on online ads.
3. Competitive Parity
Defining a budget for your online ads using the competitive parity approach is easy. All you need to do is to keep a keen eye on your competitors, and analyze how much they are spending on their online ads.
If your local competitors are spending $2,000 a month on ads, you can spend, more or less, the same amount.
In doing this, you can benefit from your competitors’ mistakes and better optimize your campaigns.
4. Objective And Task
With the “objective and task” method, you’re not going to choose an arbitrary amount, or forecast your budget on sales. This method actually focuses on your specific objectives, the tasks you need to reach that goal, and how much it’s going to cost.
How can you do this? By following these steps:
- a. Set an objective for your ads: It could be something like increasing your car sales by 35% in the next 3 months.
- b. Define your tasks: Launch lead generation campaigns on Facebook for example, and video ads on YouTube.
- c. Estimate the cost: Calculate the cost required to accomplish each task.
What Mistakes Will Waste Your Ad Budget?
For a successful ad campaign, your budget should be set up the right way. To ensure you’re not throwing your hard-earned dollars out the window, here are 4 common mistakes dealers tend to make that you should avoid.
1. Not Tracking Your Spending
If you’re not paying attention to either your campaigns or your ad spend, you’ll end up overspending your money without realizing it.
Always keep in mind that what gets measured gets managed. This means that you need to review your advertising budget on a monthly or a quarterly basis for a better return on investment.
2. Spreading Your Budget Too Thin
Are you splitting your ad budget across different channels and platforms? That’s actually a wise decision, as you shouldn’t put all your eggs in one basket. However, you might end up spreading your budget too thin on all platforms.
This is a common mistake among car dealers that you should avoid. If your budget is too low then you won’t have enough data to make the right decisions. Therefore, your whole campaign will be built on a risky dataset and you risk wasting your money altogether.
3. A/B Testing Too Much
It’s quite hard to nail your ad campaign the first time around. You never know what will work until you try it. This is why you should test your ads until you land on the one that crushes it.
However, some dealers fall into the trap of A/B testing more than they need to.
Money gone to waste.
What you need to do is give your campaigns 2 to 3 days to collect more data, then you can tweak your ads and test different things.
4. Bidding Too Much
We’ve all made the mistake of running our Google search ads for one or many popular keywords. And we were left wondering why our monthly ad budget evaporated in 3 days. Only to learn the hard way that popular keywords on Google Search Ads are ridiculously expensive. For one single click, some might cost more than $50.
What should you do then?
Before you launch any ad campaign, remember to limit your bidding. It’s like you’re telling ad platforms not to spend more than the amount you’ve set, even if the cost per click is expensive.
Setting and managing your online ad budget can be a bit challenging. Not only do you want to make sure you’re spending enough to make it worthwhile, you also need to make sure that your ad budget is being spent efficiently.
That’s why we recommend consulting marketing professionals to walk you through the process. Give us a call at (650) 264 7556, or schedule a free marketing strategy session with one of our experts.
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