20 Years of Automotive Internet: Marginal Cost Per Sale

Marginal Cost Per Sale preview
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Marginal Cost Per Sale

Even before the internet, efforts were made to survey dealers and determine the average advertising cost per vehicle sold. This is an interesting but fairly useless statistic. Advertising is about selling additional units that would not have otherwise been sold. Every dealership receives a number of sales each month that would have occurred even if the store never spent a dime on advertising. When calculating the marginal cost per sale, the same costs apply in the numerator, but these sales need to be eliminated from the denominator. A dealer spending an average of $600 per sale would actually be spending a marginal cost of $1,200 per sale, if half those sales would have happened with no advertising effort at all. The same concept applies when a dealer tries to increase sales to qualify for a stair-step program. The marginal advertising expense per sale is the increase in advertising cost divided by the increase in sales. This is how dealers determine whether or not they should continue chasing the manufacturer’s targets.