The crystal clear autotech blue ocean

Howdy. Welcome to 2022 - finally. This is actually a late email that was supposed to be sent in early January. So... apologies for the miss conduct here. That's certainly not usual.

For those who don't follow me on Linkedin, I work as a Customer Success Manager at an automotive SaaS company based in Vancouver, Canada: Speed Shift Media. I'm building the customer support team and bringing a product-led approach to how we develop our products. I can further get into these details some other time, but today I'm focusing on a challenge I'm going through: bring more revenue opps to a business that faced a steady MRR throughout 2021 - which is actually not negative, per se, if we consider the current market conditions.

New line of revenue

A few weeks back, I was on a call with our CTO to figure out how we could add a new line of revenue with our current active customers. The famous and notorious "how to upsell and reduce churn".

Context-wise, Speed Shift offers a solution to marketing agencies to optimize car dealerships' ad spending on a vehicle level. So instead of marketing every single vehicle on lot, we identify the cars that need more exposure than others and dynamically market them. Historically, Google Ads and Facebook Ads, the most known traditional marketing channels, are optimized to deliver clicks to the most popular vehicles. It's part of the game of delivering clicks. Long short story, the algorithm is built to deliver as many clicks as possible to the created ads by focusing on the most popular cars on the dealership's lot. Easy piece for them.

BUT! ... that all causes an unbalanced distribution of traffic. Picture that: you have 100 used cars on lot, for instance. Google and Facebook focus on delivering clicks to the 20 most popular ones - because the remaining 80 are not as popular and won't drive as many clicks. The remaining 80% of the dealership's inventory gets underexposed and, hence, decrease the odds of getting sold. That's the problem Speed Shift works on.

You call it bad time, I call it opps time.

The fact is that this is certainly not an appropriate time to push an increase in spending on paid ads from our customers. With more Americans than ever avoiding public transportation and moving away from cities to suburbs, more people are driving, but it's been very hard for them to find or afford a vehicle. Cars has been extremely expensive due to supply and demand rules, and the supply of new cars has never been lower due to a semiconductor global shortage.

So based on that, I spend a few days trying to map the end-to-end dealership's general operation model and get some answers to:

• How does the OEM-Dealership operation model work? OEM = Car manufacture.
• What is the most painful bottleneck in their operational model?
• What does their pocket hurt the most with?
• How can we help them mitigate this major challenge?

So I did my homework. I called some dealerships, talked to a few general managers from the industry, did some secondary research, looked at a few 10-K reports from important OEMs, and put together all the relevant pieces. I actually came across a GM 2020 Accountant Manual that showed how they manage and advice on deaelership's financial best practices.

In summary, I found out that dealerships need to sell new cars in a window of 20-30 days as they arrive on lot. In most cases, OEMs establish credit contracts that force dealerships to impose aggressive tactics to expedite new car sales. In other words, if the dealership got a $1Mil line of credit with OEM XYZ to buy new cars, they need to pay this debt within 20-30 days. Otherwise, every single extra day with a vehicle on lot means dealerships pay interest to OEMs. An alternative to deal with that is pushing used cars sales and/or limiting their revenue margin (price negotiations with shoppers) to balance the financials. They know it can be very hard to turnover new car sales in such a short time.

That's a very extrapolated way of summarizing how dealerships operate. Plus, I'm not considering all the other lines of revenue they work with and a few other variables. But my point is that they require a very organized financial operation and planning to balance new vs used car sales but also to avoid getting aging inventory. High volume of inventory equals high maintenance costs. That's where they leave money on the table and need push used cars sales to balance financial KPIs.

How can Paid Ads help them?

Do the math: low supply of new cars, high demand for used cars. That's their opportunity to turnover their used inventory and strengthen their cashflow. According to my research, there's a common practice on how to balance aging inventory:

• 50% of their inventory should be between 1-30 days old;
• 30% between 31-60 days old;
• 15% between 61-90 days old;
• And the remaining 5%, all cars with more than 90 days on lot.

So I segmented our agencies' clients (the dealerships that are running ad campaigns with us) based on their aging inventory to get the picture of the most critical dealerships that were not advertising the bottom block of vehicles with more than 60 days on lot. I found that if we get them to increase 16% of their budget within the next 3 months and maintain it throughout their average lifetime, we'll get at the end of the year an increase of 10% on expanded MRR. 

Sounds easy, right?

ROI, Leads, Attribution.

The equation might sound simple and obvious. "Hello, my dear agency. Increase your clients' budgets and we'll achieve success together." They have their margin to be added and dealerships don't care as much as we do about clicks, engagement, sessions, traffic, etc. They just want to be out there, creating ads online, and focus on ROI. How many shoppers will this increase of budget bring to my sales pipeline?

Voilà. You just got introduced to the ads market one-billion question:

How can I attribute ad performance to my brick-and-mortar shoppers?

While many sales people would like to believe every face-to-face sale they have ever made is a result of their brilliance, the marketing team most likely helped them make that happen. You might say that buying cars online is a reality, but it only represents ~9% of the overall US car sales market. So shoppers still make their final decision on high-ticket items at the dealership store and you have no idea where they came from and why. So, for now, it's still tough to attribute traffic and leads to brick-and-mortar shoppers.

That's where the challenge is and unfortunately we don't have the answer... just yet.

Motivation

All these uncertainties aligned with the fact that the auto industry is a crystal clear blue ocean of opportunities, I found myself very motivated to find answers to questions that current players don't know yet and/or haven't found any solution to mitigate risks. 

The reality is that the autotech sector is full of opportunities and many players are focused on this massive and archaic car-buying journey.

Oh, by the way, reply to this email if you know any B2C solution that effectively help car shoppers make a decision on what car to buy next.

For non-car-savvies, that part of the process might be tricky when you have to know what year (if used car), make, model, trim to look for based on what you effectively need or want.

Who's the TripAdvisor or Yelp type of tool for car buying?

Let me know. Talk to you soon.

JP Paiva

Connect with me on Linkedin. I'm not an info-product seller. I promise. 😂

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