Decision Maker 101: Third Party Leads. The Good, the Bad and the Ugly

If you’re in the car business, unless you’ve been asleep the last ten years, you have seen the emergence of third-party lead generation in a big way. More so in the used space than in the new, but either way, it’s becoming a huge part of the used car marketing space and that could be a problem.

Ten years ago, I thought I had discovered the holy grail of used car marketing. I could buy leads at a fixed price, that would convert at a fixed conversion rate, providing a predictable cost of customer acquisition. More focused on non-prime than prime, the average gross would be strong as well with prospects less focused on price than on just getting approved. Combine that with a predictable average gross and presto, you have something scalable. Predictable cost of customer acquisition with strong average gross. What more could you ask for?

Lead generation was just getting started. It wasn’t long before we had dedicated a huge portion of our marketing budget to buying third party leads. Newspapers were in decline. Radio and TV were still there but becoming more fragmented every day with new ways to stream music, and video. There were still those automotive listing sites, but they were only going to give you so much. The ability to buy leads at a fixed price was a new age in the car business, a bonanza, but it wouldn’t last for long.

The ability to buy leads at a fixed price was a new age in the car business, but it wouldn’t last for long.

After a year or so, lead conversions began to drop. Initially we would see conversion rates that would approach seventeen percent and higher, but then a slow and steady decline. Fifteen percent. Twelve. Ten. But the thing was, even at ten percent, buying leads, and having the element of predictability, was still a more reliable business decision at the moment. So, what can you do? You continue to dedicate more and more budget to the product that's bringing predictable results.

It wouldn’t take long until third party lead companies figured this out too. Dealers were becoming dependent on third party leads. More dealers wanted to buy third party leads. What happens when demand goes up? Well either the price goes up, or there needs to be more supply. In this case, both happened. Prices of leads went up. Quality of leads went down. Why? Well, because if you put out an internet ad that says, “One thousand brand new trucks parked in a field at half price,” you’re going to get people to fill out forms that you could sell as leads, but good luck converting them. You could have another ad that says, “Zero percent car loans for people that have been bankrupt,” or my personal favorite, “Get another jewel for your internet game by filling out this form,” which of course will convert into an instant hang up when you call.

And there it was, the big disconnect emerging in third party lead generation. Lead generation companies are motivated to generate leads. Not sell cars. They make money when they sell you a lead. That’s it. If it doesn’t convert, that’s your problem.

Now, the good ones, and this is the good, have figured out that there is a minimum tolerance for lead conversion that experienced dealers can live with. They have figured out how to maintain a level of “quality” that keeps the patient alive...or customer buying, but barely, while maximizing lead volume. Believe me, a large lead generation company knows exactly what the quality of each lead is based on how it was generated. It’s just math. Then they make sure you get enough good ones to keep you happy.

The bad ones, and believe me there are lots, are popping up like coffee shops. On the one hand you have more and more dealers trying to buy leads, because, well, they are late to the game and feel like they missed the party. Demand is still there so every day new lead generation companies pop up. Better leads! Cheaper leads! Must be a real pain in the ass for those older established lead generation companies. Bunch of little bottom feeders nibbling at their business. But they know what dealers find out when they buy them, at least from most of them, conversation rates suck, because the leads suck. They are surviving off the growth of the industry moving from dealer to dealer. Creating and selling garbage leads to dealers with less experience, or desperate to get into the game.

More and more dealers are trying to buy leads, because they are late to the game and feel like they missed the party.

Unfortunately there are the really ugly ones. These companies are just predatory. Moving from dealer to dealer selling non-existent leads. The thing is, with lead generation companies, unlike most business-to-business relationships in the marketing space, up-front payment before getting the leads is the accepted practice. That creates an opportunity for real pieces of crap to get into the game and sell leads that they don’t even deliver. Money for literally nothing. Never mind even getting a crappy lead from some ten-year-old plugging in his parents’ information to get a free weapon to kill more bad guys, you’re not even getting that. Lesson here, check references! Lots.

That’s what the new age of used car marketing, third party lead generation, has become. Some quality established suppliers who keep their customers alive by maintaining the minimum tolerable lead quality. A ton more that are less focused on quality and more on volume; and live off dealers who can’t do math. Then there are a few pickpockets out there just taking advantage of dealers one by one and moving on.

They do have a few things in common though. They all don’t care about your brand, how many cars you sell, or how much money you make. They only want to sell you a lead. That's the bottom line. Good luck and good selling.