Preparing your radio station budget
Here are a few budget tips for 2006. Many of you may already know this stuff, but it's good to review. Have a tip of your own share them with us at [email protected]
Let's assume if you achieve the submitted and approved cash flow goals for next year, and you will receive additional compensation. It's usually between 30 and 50% of your annual salary for making it. Get close (within 5%) and in some companies you will get 10-15%. (your company may differ.)
Usually The Rules Are Stacked Against You!
The rules usually favor short term success, not long term performance. Over 5 years, in some cases, you will actually receive less compensation each year for providing more cash flow. (below is an actual example from my 20+ years in corporate)
Does this look familiar?
Case study assumption. Market revenue is growing at 5%. No GM salary increases in this case study. 6 stations are in the cluster. Stations are in mid-level performance. (2 are top billers, 3 are mid range, one is a problem.) Each year you are given the task of providing 7-8% revenue growth and 12-15% cash flow growth. (Hint - unless there is a major format change in a few of your stations in one year, it's rare the company will ever let you grow expenses faster than revenues.)
1. Let's say the GM had a cluster goal of making one million dollars, 3 years ago. (2003) The market is growing at 5%. The budget calls for you to increase the bottom line by 15%. But you fix a few formats, watch expenses, hire the best people, and coax better than average growth out of the cluster. Good for you! This GM has a salary of $100,000 per year. In the event you achieve the BCF goal you receive 50% bonus at budget. You get $150,000. Great!
(Again, check my math!)
2. In year 2, (2004) assuming you grow the bottom line by an additional 15% (for a total goal of $1,150,000) you continue to reap the benefits of your "fix", and you receive an additional $50,000. You made $150,000. "Honey! We can put the kids through college!"
3. In year three (2005) you must continue to perform at this high level. It gets harder to grow a cluster in a 5% growth market. But the budgets don't get reduced in mature properties so you are required to once again grow the cash flow at 15%. But you are "the star!" of the region! You did it last year! Your goal is now $1,322,500. (1,150,000 +15%) But, you cut a few expenses and kill it! Cha-ching! $150,000 coming your way!
4. It's getting harder to make the growth number . By cutting expenses in "05" to make it, you are now faced with doing another 15% increase in 2006. (goal is now $1,520,875) But last year you cut expenses, a new competitor showed up (they are going after your growth, people, and market share) You can't submit a budget with less growth than prior years, so you add units to make it. Uh-oh! this is getting really hard. But, that's why YOU are there! "Make it work!" You do - almost! You make it to $1,500,000) close. But you deserve something! It looks like 20% bonus. You make $120,000 for growing the bottom line 13%.
5. You can't possibly make another 15% growth year. The market is now growing at 2-3%, you're under attack, and you're out of tricks. You cut marketing, staff, commissions, and raises. You added units, hired an NTR person, and Good news! They give you a break! you only have to grow the bottom line 10% in 2007. ($1,650,000) Bad news! There is no way you can maintain the growth rate even at 10% Ratings are dropping, costs continue to go up, and you are trying harder than ever! Even if you grow the bottom line 8% ($1,620,000) it will be a victory! And it is! But not for you. You missed your goal. No bonus this year. You are now making less than you did 2 -3 years ago. The growth rate is gone. And so is your incentive to grow the cash flow. "Honey, how about community college or truck driving school for the kids?"
How can you maintain the required growth for you and the company?
Ten Tips To A Better Budget
1. Plan, plan, plan ahead. Assume you will hit the growth wall in year three. Have a plan in place to add additional revenue. Fix the broken AM station, add a new station, (if they are in a buying mood) syndicate the morning show, add revenue incentives, grab sports rights that cash flow, build a digital platform of podcasting, web site, streaming, HD, whatever you can add in value to your brands.
2. Own all the franchises in the market. Big morning shows, sports rights, traffic services, anything that has lasting value. Yes, it will cost more, but not having "franchise" programming will hurt revenue.
3. If you have "franchise" programming, it's easier to hire the "A" level sales people. Having the absolute best sales department personnel will make it easier to grow faster than the market. Usually, in a 10 person sales department, 4 are great, and do 60-70% of the total sales. 3 are good, and do 30-40% of total sales and the rest are not going to get you anywhere! It takes years to grow "A" level people. You can't afford to lose any of them. Keep them at all cost.
4. Spend money only on people who perform, and none on people who don't. Who are getting more than 2-3% raises? High rated, high revenue personalities. Keep them happy. They are more valuable as the years go by. Especially to your competition.
5. Watch expenses like a hawk. T&E, station debris (t-shirts, office supplies, subscriptions) computers (not cap-ex in many companies) all cause "expense creep" year after year. You will not win the ratings war with refrigerator magnets. (hmm- nah!) Don't fight for debris in the budget. Fight for the "big" stuff. Research, marketing, "A" people raises.
6. Lower the expectations ahead of time. If the company thinks you are a whiz kid, the first year you hic-cup will hurt your perception. Grow for the long term, not the sprint race.
7. Don't sandbag too much! Sure, leave a little back, but if you do more than 10-15% than you promise, you will get the image as a sandbagger. Companies know who the "baggers" are. They make adjustments for it.
8. Don't miss by a mile. Bad surprises are death to CEO's. If you have a "bogus" budget and are going to miss by more than 20% it will hurt you. "Next year we are going to kick ass" will only raise expectations. Then if you don't "kill it" you will be in trouble the following year. Better to tell them up front. it's painful. At least you are on the record as "telling it like it is."
9. Don't make excuses. They have heard them all. Are you doing everything you can to grow revenue? Yes? Take last Sunday's paper, cut out every ad, make two piles. Place all the advertisers you have called on in the last 5 weeks in one pile, and the people you HAVE NOT called on in the second pile. Usually, the second pile is bigger, much bigger, than the first.
10. Have a back up plan six months into the year. If you are running behind by a-lot in June of next year, you're in trouble. You can still make the year. By September, it's too late. Identify the issues early in the year. Adjust on the fly.
I am amazed at the number of people who think something is going to fall from the sky to make the year. If your stations are all doing the same thing, year after year, with no adjustments, why will they grow faster than the market? That 2 share FM, given no adjustments will be........a 2 share station again this year.
Plus there is more competition from technology than ever. The internet has changed everything. If your company still has budget expectations from three or four years ago, you may be in for a rough ride. This is where planning will come in handy. Where do you want the cash flow to be in three years from now?
How do you get there? Start positioning your cluster and your company for the future.
The time to think about your 2007/2008 years should start now!
Good luck everyone!