If statistics are any indication, your automotive advertising budget probably isn't getting any lower. According to Statista, ad spend by auto dealers rose from $566 million in 2010 to $2.4 billion in 2017.
That's a sizable increase, with the steepest hike occurring between 2015 and 2016. One likely reason car dealers are spending more on ads is that they've seen firsthand that paid tactics can increase sales, and they've also probably observed changing customer behaviors.
Over the last decade, more people have begun to research and shop for big purchases online — even cars. Keeping up with the trend means upping the ante on your ads, but how do you set an automotive advertising budget that doesn't cut into your profit margin?
A good place to start is by determining how much you're willing to pay per click, which Search Engine Land indicates should be based on your average customer's lifetime value. Knowing your CLV is particularly important if you're concerned about overspending on marketing.
This figure accounts not just for the customer's initial purchase, but also for any servicing, financing or insurance, car parts and future spending on new or used cars. You may also factor in the customer's potential for referral, as a happy buyer is likely to recommend you to friends and family.
By The Numbers
Essentially, your CLV is the profit per transaction multiplied by the number of that customer's transactions, minus ad and marketing spend. (For the latter figure, divide your current budget by your average number of monthly customers.)
Once you know your CLV, you can set minimum and maximum limits on your automotive advertising budget. These are the key figures an ad or marketing agency will need to know when getting started on your strategy. Your team of experts can optimize your ads from there, exhibiting how smart targeting and creative can lower your cost of customer acquisition.