A vast majority of local business owners have never used broadcast advertising because they feel it is too complicated to buy or too expensive for them. The few that do use us are typically suspicious of us. And because they don’t fully understand the rules of our “complicated” numbers-oriented game, they hedge their bets, erring on the side of caution by not spending what they really should or could. And finally there are those former clients who “tried” broadcast but feel disappointed because they feel it “didn’t work.”
Where do local direct decision makers come up with the budgets they plan on spending with your station? Typically you can count budget sources on three fingers.
· Someone at their state or national association told them that they should never spend more than X percent of their gross revenues on advertising. You’ve heard this before. “Well, they say that we should only be spending four percent of our gross on advertising.” Really? Well, who are THEY? If a national discount competitor is moving in across the street, maybe the client should be spending 20 percent of his gross revenues on advertising.
· They estimate what their competitor is spending and then plan their own budget accordingly. Brilliant.
· Someone pulled the number out of their ______(rear end.) This is where most advertising budgets actually come from.
Broadcast salespeople who don’t know how to calculate return on investment for their customers needlessly suffer. They take what budget the client dictates even when they know the business should be spending more. They have nothing to say when the client tells them to cancel because the advertising is “not working.” In fact, here’s a dirty little secret. Many broadcast sellers will not contact the client while a schedule is running because they’re afraid they’ll remind the client that it’s not working and they’ll cancel.
Smart broadcast sellers avoid these problems by educating direct clients about return on advertising investment in language anybody could easily understand. Here’s how to do it.
1. Determine the biggest weekly audience (CUME) that your station reaches in a week. If you don’t have a CUME number determine the population in your signal coverage area and come up with a percentage audience estimate that your client would agree is fair.
2. Determine your client’s average sale. Divide the total receipts from an average day and divide by the number of customers that bought.
3. Determine your client’s gross margin of profit. This is the percentage of your client’s average sale that remains to reinvest in his business after subtracting either the cost of materials or labor, whichever is more. For example, a jeweler’s gross margin is 50 percent after he subtracts the cost of the jewelry. An electrician’s gross margin is 40 percent, after he subtracts the cost of labor. A nightclub’s gross margin is 70 percent after you subtract the cost of booze.
4. Determine a weekly schedule cost. Aim high, you can always come down if you have to.
With these four numbers you can work magic. If the client repairs auto body work his gross margin (after labor) is 45 percent. If his average sale is $1,200, how many new customers would you have to bring him to justify a $5,000 weekly budget on your station? The correct answer is 10. If your CUME is 100,000 people a week 10 people would represent point zero one percent of your weekly audience. If you brought in 15 new customers (.015% of your weekly audience) your client would see a nearly 65 percent return on his advertising investment. Gee, I don’t know about you, but I think I’d take a 65% return on my investment any day.
If you’re mathematically stunted, get my ROI calculator The Mediator Professional on my website HYPERLINK "http://www.paulweyland.com" www.paulweyland.com and it will do the arithmetic for you.
This kind of logic makes advertising on your station seem like a good calculated risk instead of gambling. With this knowledge you can take control, increase budgets, manage expectations about results and go home and get a good night’s sleep.
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