When auto sales are sluggish, dealers naturally look to cutting costs in order to get through lean times. Most often, the first cut slices into the marketing and advertising budget.

Like any educated investor, however, dealers should first consider a reallocation of their marketing investment before making across-the-board cuts. To make things simple, let's consider a typical newspaper and Internet lead investment.

Suppose your dealership is going to spend $22,500 this month on a mix of newspaper ads and Internet leads, with the bulk going towards a spread in your metro area newspaper. Based on average close rates, with the following allocation (see Table 1), your average cost per vehicle sold would be around $750.

Table 1. Internet Newspaper
Investment $ 2,500 $ 20,000
Leads or Ups Generated 100 100
Average Close Rate 10% 20%
Vehicles Sold 10 20
Cost per Vehicle Sold $ 250 $ 1,000
Total Sales from Both Campaigns 30
Overall Marketing Investment $ 22,500
Overall Cost per Vehicle Sold $ 750

If you decided to cut your budget in half for both campaigns, all things being equal, your cost per unit sold would remain consistent, but you'd sell half as many cars.

Suppose you try another scenario. You decide to make a budget cut, but of course you want to keep sales up. You decide you'll drop your marketing investment to $15,000 this month. In this scenario, you choose to up your leads budget to $5,000 (therefore doubling your lead volume) and spend the balance on newspaper ads. (See Table 2.)

Table 2. Internet Newspaper
Investment $ 5,000 $ 10,000
Leads or Ups Generated 200 50
Average Close Rate 10% 20%
Units Sold 20 10
Cost per Vehicle Sold $ 250 $ 1,000
Total Sales from Both Campaigns 30
Overall Marketing Investment $ 15,000
Overall Cost per Vehicle Sold $ 500

The result: your cost per unit sold drops by 33%, but you still sell 30 units. It may seem obvious — adding more Internet leads to your marketing mix will decrease your overall cost per unit sold because Internet leads are effective and cost less. Nevertheless, many dealers still invest a large portion of their marketing budgets in traditional advertising.

Reasons for that vary. It may be simply that your current Internet team is not yet able to handle an increase in lead volume. Or, it may be that you feel the need to cover all your marketing bases.

Consumers at work and at home are exposed to a variety of media throughout the day — the Internet, TV, radio, newspapers.

There's something to be said for marketing cross-pollination. A consumer may be looking for incentives in the newspaper and then go online for further research and to submit a lead.

Even so, only the Internet offers a measurable way to gauge whether consumers are actually paying attention and responding to an offer.

Another reason for dealers to continue investing part of their budget in traditional advertising is that the number of leads available for certain market areas may be limited.

In this case, dealers may need to resort to other channels in order to get the attention of all the prospects in their area. Some dealers choose toexpand their Internet lead territories in order to get the volume they need.

Keep in mind, however, that increasing your territory by another 30 miles could lower your close rate. Nevertheless, for volume dealers selling Ford, General Motors, Toyota, Honda or Nissan vehicles, the major lead providers should have no problem supplying over 300 leads per month within a 25 mile radius.

Just as any cautious investor will avoid putting all of his or her eggs in one basket, many dealers are choosing to remain diversified with their marketing dollars. Still, on average it costs $250 to sell one vehicle with Internet leads and $1,000 with newspapers ads.

Diversification is the key to any healthy portfolio, but in lean times, directing more resources to Internet leads may be the best way to sell more cars for fewer advertising dollars.

Dean Evans is marketing director for Dealix, an Internet lead-referral firm.