“DL index” as Namibian economic welfare indicator

Anyone who is involved in online business providing any service knows that if you can’t measure the result you can’t really sell it. And with this thought we came up with an idea to create one of such tools - our own DL index, which will allow us to measure the efficiency of the service, and provide it as a kind of reference value, which can be used in everyday business or economic activities and its principle can be applied to various online services in order to measure their cost and efficiency.

Since DealerLogin system allows to analyze the efficiency of all advertising platforms in % ratio in real-time, we can use these data to analyze and estimate an average cost of a single enquiry submitted by a potential customer (the “lead”) and create “DL index” which will allow car dealerships to predict spending cost on their advertising with almost guaranteed result to get the lead. 

During 12 years of operations DealerLogin has collected enough records on customers' enquiries, as well as amount of collected income by all advertising platforms linked to DealerLogin. And if we divide monthly revenue by the number of leads generated by the DealerLogin network we will get a so-called DL index which will estimate the average cost per lead of a potential car buyer for any advertised car dealership.

For example, if the DealerLogin network collected N$200,000 for the current month and generated 900 proven inquiries we divide N$200,000 by 900 and get N$222 which is DL index for current month. We have to admit though that this figure can not be 100% accurate due the fact that some potential car buyers are just making phone calls without submitting mail enquiry, which can not be tracked or recorded. However, we know that the number of such phone calls vary between 15% to 40% which gives us the average of 25% on the top of the DL index if a marketplace displays the phone numbers of advertised car dealerships, and  thus the DL index for such vehicle marketplace will be 25% less. Other-words, for the online vehicle marketplace which does not display phone numbers of advertised car dealerships cost per lead will be equal to DL index, while for the online vehicle marketplace which does display phone numbers of advertised car dealerships cost per lead will be “DL index minus 25%” (or other percentage that fits each dealership’s own non-mail leads).

To make a sale it requires from 1 to up to 7 leads depending on a sales-rep's skills and luck, and policies on vehicle financing by local banks, which makes 4 leads per sale in average. Thus we can say that by spending a cost of 4 leads (DL index x 4 times) you get a 100% guaranteed sale, which can be customized depending on preferred sales volume. As it's been mentioned, the sales-rep's skills are the key to reduce the costs, but we are talking about estimating the spending for those who do not want to rely on sales-rep's skills, and keep only the mathematical strategy of planning.

DL index should not be confused with cost per click, which can vary from N$0.5 to N$5.00 and above on Google advertising networks or Facebook. Cost per click shows people’s interest in buying a vehicle in general, but does not really guarantee decision made about the enquiry for a specific vehicle available from specific dealership’s stock, and it might take over 1,000 clicks in order to generate just a single lead. And this is excluding development and maintenance cost of own website, plus Google and Facebook ads require specific skills to set up an advertising campaign properly, which is time consuming as well.

These data can be used also to determine the economic well-being of the country, as a bigger number of inquiries will lead to the decrease of DL index, while a fewer number of inquiries will increase DL index accordingly, reflecting the overall demand and people’s purchasing power. 

However, other circumstances not related to the economic well-being of the country might affect the index, like low quality of leads due to spam, an illegal activity (manipulations with leads for instance) or politics of vehicle finance institutions in Namibia. And if the quality of leads can be controlled, and illegal activity can be cut short, it is practically impossible to predict the policies of Namibian financial institutions, but it is the last ones that are actually the key contributors to leads quality, because if only 1 out of 10 quotations gets bank approval it will literally convert top quality leads into a spam and will thus make DL index unclear. However, this index can still be used as a key economic indicator for both the automotive industry and for the economy in general, and opens the door to new business opportunities.

The lowest DL index record was N$120 in July 2014, and the highest one was N$391 in December 2018, which was probably the worst month in the 12 years history of Namibian motor-trade. An average DL index for the past 12 years is N$217, which can be used as reference to point 0 by graph scale lookup. With this is mind we can consider everything bellow N$217 as a sign of economic growth, and everything above as a sign of economic stagnation in Namibia, since cost per lead is always higher during any economic downward movement as sales drop due to lower demand along with lower purchasing power of the population, and thus it gets harder to do an actual sale, whether it is a vehicle or anything else. 

We understand that some online marketplaces might use these data as a kind of reference and it may turn out that their own index will be much lower, and higher performance might seem to take a place. However, it is worth considering the fact that their own index may be lower only up to a certain number of leads, and they would not have enough volume to satisfy all market participants anyway. Thus in this case it can not be considered as a relevant lead cost reference pointing out flaws of other business models with higher index.

It is important to note that in the DL index algorithm we also counted the inflation and devaluation rates, which increased the cost of vehicles in Namibian Dollars by more than 60% compared to 12 years earlier with average inflation rate almost equal to the same of US Dollar (max. 2% difference), which does not really effect the real money value which was jumping from N$6.5 to N$19 and shows up to 300% increase with more or less same inflation rate, which is the sign of unreasonable depreciation of the national currency not related to the common inflation.

The DL index for March 2020 is N$ 228 which is 5% higher than the average of N$217, so we can assume that Namibian well-being in March 2020 was 5% lower than it was on average for the past 12 years accordingly. And it is a big wonder what DL index will be in April 2020 considering the entire country’s lockdown. In case our calculations are accurate, the DL index for April will be higher than ever before.

Important notice. DL Index is a dymanic value depending on the current Namibian Dollar exchange rate and purchasing power in order to provide a relevant and comparable reference at any time. 

Published on 09.04.2020 by NamCars.net on behalf of Dealer Login Namibia

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