Calculating ROI to Avoid "Bonification"

How many times have you heard from a local client, "Cancel my schedule. It's not working." And then you're forced to beg. Oh, no...please, PLEASE don't cancel. I'll give you some BONUS SPOTS!"

And why does the client think the campaign is not working? Perhaps it is because he thinks that by advertising on your station he should have people lined up outside his door. He perceives that as a result of his campaign he should have 100 new sales, when in reality he only needed perhaps eight to break even on his schedule on your station. Shame on you if you have no way to manage your client's expectations about results. Giving the client bonus spots only delays the cancellation process and makes you look like you do not know what you are doing.

I find it highly ironic that in Mexico, bonus spots are called "bonificacion". Well, guess who is getting BONED? It is US in the broadcast business, and it is our own damned fault. Just think of the millions and millions of dollars we in radio and television have needlessly given away in painful "bonificacion" simply because we were never on the same page as the client about how many people should respond to the client's message on our stations.

Well, what if you could close more long-term contracts with local direct clients with little or no rate resistance no added value and no more embarrassing and needless "bonificacion"? Wouldn't it be nice if you could double or triple what a local direct client "thinks" he should be spending on your station? And what if you could accomplish these miracles regardless of whether you are number one or number 20? You would be rich and your boss would love you.

This article is about how to make a local direct broadcast sale whether your station is number one or number 20. It is about how to close long-term business regardless of format or program. It is about closing a local direct sale with less rate resistance or "added value". It is about keeping your clients on the air by managing their expectations about results on your station. And, it is about potentially doubling or tripling what a local direct client "thinks" he or she should be spending on your station. If you are interested in learning more about some or all of the above, keep reading.

Perhaps one of the biggest buzzwords in the broadcast industry right now is the acronym ROI, which of course means RETURN ON INVESTMENT. Well, ROI is nothing new to people who have attended a Paul Weyland seminar, used E-Lessons™ or have purchased Paul Weyland CDs. At Paul Weyland Training Seminars, we are all about ROI. But as somebody important once said, "Repetition is the Mother of all learning." What I mean by that is, "Repetition is the Mother of all learning."

Another reason I am writing about ROI this month is because after much work we are about to release the new PROFESSIONAL MEDIATOR ™. This new version is printable and will also help you to write one-page SOS client proposals.
Anyway, back to ROI.

Just because we got into the business of media sales by mistake is no reason to do business by mistake. Armed with just a little information about the local direct client I am dealing with, I really can double or triple the amount of money my prospect thinks he should be "risking" on my station. And, I can sell this client with little rate resistance or added value, regardless of my ranking in the market. But in order to achieve these goals, first I have got to have a little information.

KNOW YOUR STATION'S TOTAL CUME AUDIENCE NUMBER

The first thing I have to know in order to calculate ROI for a client is how many different people listen to or watch my station every week. I am looking for the biggest 12-plus audience you have got. Your CUME number would be the number of DIFFERENT people who tune into your station in an average week. It is your station's BIGGEST NUMBER. Frankly, I would rather peel my own corneas out with my thumbnails than voluntarily chop my giant CUME audience down into tiny little chunks. You have got a big number, so use it when describing your audience size to a potential client. If you are in a rated market and you do not know your total 12-plus CUME number, find out what it is. If you're in an unrated market or you do not subscribe to a ratings service, determine the population of your signal coverage area and come up with a percentage that you and your advertiser could agree is a fair estimate. TV folks, use your CUME number, NOT households.

COME UP WITH AN AVERAGE RATE

Most broadcast stations make it incredibly difficult for local direct clients to buy from them. In fact, most local direct clients PERCIEVE that broadcast advertising is confusing, complicated and expensive. Whose fault is that? It is OUR fault. WE make our product look complicated and confusing and it is not just the ratings info we sling at local direct clients. It is also our rate card situation, a system ordinarily so complicated that it would practically take an actuary to figure out how to read it.

Think about it. If you walk into a store and ask how much a pair of jeans cost, it is black and white. The price for a pair is posted. It is pretty clear. But ask a broadcast salesperson how much it costs to buy his or her station and you get, "Well, that depends -- it depends on whether you are buying mornings, fringe, mid-days, prime, weekends, nights. Oh yes, and on Mondays and Tuesdays we are on Grid 4. But on Wednesdays we are on Grid 2--except morning drive where we are still on Grid 2 because we are sold out. Thursdays and Fridays are always Grid One because those days are always sold out three weeks in advance. But Saturdays we are on Grid 5, except mid-days--they are Grid 1." See what I mean?

Here is an easier way. Average a single rate from the schedule you are putting together. For example, let us say you were trying to sell a client a spot an hour on Mondays and Tuesdays. If your average Monday-Tuesday 6 AM-10 PM rate was 100 dollars, then when somebody asked you how much it would cost to buy your station, you could say, "Well, to use our station correctly, about 15 hundred dollars a day." I use this average rate philosophy all of the time and nobody freaks out when they hear the number. Why? Because they are used to hearing big numbers like that from the newspaper.

ASK YOUR CLIENT FOR HIS AVERAGE SALE FIGURE

To determine AVERAGE SALE for a business, simply add up all of the sales your client makes in an average day and then divide that number by the number of customers that bought.

KNOW YOUR CLIENT'S GROSS PROFIT MARGIN

Every business has a GROSS profit margin and a NET profit. In order to calculate ROI for your client, you must know what the GROSS profit margin for your client's product or service category. GROSS profit margin is how much a business makes AFTER the cost of labor or goods. GROSS profit margin DOES NOT include rent, utilities, taxes, etc. That would be NET profit. If I asked a client what his NET profit was, he would probably say, "That is none of your damned business," and he would be right. Buy asking a client for his GROSS profit is a fair question, because GROSS profit margin is about the same for every single business in his product or service category.

If the client is a clothier, his GROSS profit margin is close to the retail standard, called KEYSTONE, or 50 percent. This means that if the clothier buys a shirt from the factory for $25.00, he will then mark the shirt up 100 percent and sell it for $50.00. When he sells the shirt he subtracts his merchandise cost ($25.00) and is left with a 50 percent GROSS profit margin.

Here are other examples of standard GROSS profit margins for other businesses.

• Jewelry stores 50%
• Appliance stores 35%
• Restaurants 40-70%, depending on the food cost
• Automobiles 20%
• New homes 18%
• Mobile homes 40%
• Night clubs 60-70%
• Grocery stores 20%
• Furniture stores 44%

Once you have all four of these essential numbers (your CUME, your AVERAGE RATE, your client's AVERAGE SALE and your client's GROSS profit margin), you can work out an ROI calculation for your potential client.

Let us consider the following scenario.

Let us say your weekly 12 + CUME audience is 50,000. Your average rate is $50.00. Your client owns a furniture store. His AVERAGE SALE is $800.00. His GROSS profit margin is 44%. You suggest to the client, "Look, I know you are not spending $2500.00 a week on our station, but as an example, let us say you did. Knowing that your GROSS profit margin is around 40% and your AVERAGE SALE is about $800.00, how many $800.00 sales would you have to make in order to pay for the cost of the $2500.00 advertising schedule? The answer is about 8. Look. We reach fifty thousand people a week on our station. It would be impossible to reach every single one of them. To do that, we would have to run the same commercial over and over, every minute of every hour of the day. If we did that, we would have no viewers or listeners. But we do not have to reach EVERYBODY, just a small percentage of our listeners/viewers who WILL buy furniture from you or your competitor this week.

With a $2500.00 schedule, we could run 50 commercials (at $50.00 per spot). With that many spots, we could OWN two or three days on our station. And with a provocative commercial, it looks like a GOOD CALCULATED RISK that we might be able to sway eight new customers (.016% of our weekly audience) to your store. If we do that, you break even on your advertising campaign. But what if instead of eight, we caught twelve new customers (.024% of our weekly audience) with the same fifty spots? That would be a 54 percent return on advertising investment. Although I cannot guarantee a 54 percent return, it does look like a good calculated risk, doesn't it?".

And, it DOES look like a good, calculated and attainable goal.

Let us look at the math.

Let us say that with a good spot and with a good schedule, just ONE PERCENT of your audience responds. That would be 500 people. But that is unlikely to happen. It is unlikely that your client is going to advertise anything that would attract a sudden mob of people to his store. But what if just ONE HALF of ONE PERCENT responded to a good commercial, played enough times so that people who are shopping for furniture have a chance to see or hear the spot. That would be 250 people. But that is probably not going to happen. But if just ONE FOURTH of ONE PERCENT of our audience came in and bought as a result of good bait cast enough times on our station, that would be 125 people. That is still not likely to happen, as the client is not giving away free furniture. But what if only ONE EIGHTH of ONE PERCENT of our audience responded to the client agrees is a more effective commercial and a more effective schedule? That would be about 63 people. You see where this is going.

1/16 of ONE percent of your audience would be 32 people.

1/32 of ONE percent would be 16.

1/64 of ONE percent of your weekly audience would be 8 people.

Remember that we only needed eight new customers for the client to break even on the advertising campaign.

At this point, I could say to the client, "Hey--instead of going after eight new customers, let's go after MORE." And the client might double or triple what the client "thinks" he should be spending on my station.

Game over. I use an ROI calculation with every single local direct client. They like it because it is in a language that is easy for them to understand. It does not make any difference whether I am number one or number fifty. Instead of focusing on rate, the client is now focusing on what appears to be a good calculated risk. We have better control of what the client perceives your station should deliver. AND, you avoid painful "bonificacion".






Paul Weyland: 5450 Bee Cave Road, Suite 1-C, Austin, Texas 78746, 512-236-1222, paul@paulweyland.com
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