Radio Advertising Costs Less Than You Think!

Radio is probably the most cost-effective media you can buy - if you know who your Target Audience is.

Compared to television, magazines and newspaper, radio advertising delivers Target Audiences at very, very low costs.  You can spend $65.00 to $85.00 per thousand to reach Females 25+ with a color ad in TIME, PARENTS, or COSMO.  You can reach the same ladies for as little as  $5.25 per thousand in network radio, when they're in their cars, driving by your stores.

   This page gives you an overview of how radio stations set their rates and how you can negotiate those rates to make your dollars work harder.  Here are answers to the questions I get most often from people who are interested in radio, but don't know where to begin. 

   Every realm of human activity has its own jargon.  The Radio Glossary page defines the most commonly used terms.  I've included links to the Glossary for some abbreviations in the text below. 

"What does a radio spot cost?"

     Call your favorite local radio station and ask what it costs to run one :60 spot on Thursday morning.  You'll get the highest rate that station charges anyone, anytime, ever.

     Thursday morning is the beginning of the Radio Weekend.  Car dealers and retailers all want to be on the air.  Demand drives prices. And prices are based on... what?

     Radio stations set their local rates according to Arbitron Ratings based on semi-annual diaries kept by local listeners.  Arbitron's accuracy may be flawed, but all stations and advertisers live and die by the same flaws.  So will you, at least at first.

The rate card price of a commercial is based on a competitive cost per thousand Persons Aged 12+ who are listening to that station at that time of day - the AQH or Average Quarter Hour Audience.  

     If the market-wide P12+ CPM is about $6.50 and WOPQ-FM attracts 10,000 of them Mon-Fri 10a-3p, they will charge about $65 per :60.  If they attract 6,000 Males aged 25-54, they may charge more - depending on local demand.

     If your Target Audience is M25-54, which are 60% of WOPQ's Average Quarter Hour audience, your effective cpm is at least:

 $6.50 / .6 = $10.83
                or
$65.00 / 6 = $10.83

"Why do some spots cost more than others?" 

     It's the old Supply and Demand curve.

    Radio is often used by local retailers to drive people into stores.  Since both buyers want to reach as many people as fast as possible, they tend to bid up the prices of drive time radio spots (6am to 10am) and (3pm to 8pm).    

 

     Local stations charge different rates for :30's and :60's.  Since they usually run the same number of spots per hour, they often charge 80% of the price of a :60 price for a :30.  (Clear Channel has begun a recent initiative to reduce clutter.  They want :30's and are starting to charge premium rates for :60s.  They're the leader.  Watch for other stations to fall in line.) 

     Conversely, in lower rated day parts (10a-3p). (8p-6a) and (Weekends) when buyer demand is low, prices tend to drop as well.  Smaller stations that cater to older audiences or ethnic groups, which are often underreported in Arbitron diaries, may command lower rates.

"What does my audience cost?"

     Don't confuse the lowest spot price with the best deal.  

     Your own Target Audience CPM is the spot cost per thousand divided by the TA DEMO % of AQH. (See example above.)  A low price commercial is cheap because not too many listen to that station at that time, so demand is low.       

     Most stations work hard to attract and hold a loyal audience.  They tailor their formats to fit the interests of the main DEMOS: Persons aged 18-25, 25-34, 35-44, 45-54, and 54+.  Males and Females.  

    You want to buy those stations that reach your "Target Demo" the best.  Ask any rep to run a Tapscan or Arbitron report on your audience.  You'll get a list of all stations ranked by the size of their TA Cume (weekly cumulative audience).   

    You can also ask for certain demographic qualifiers, such as education level, homeownership, children, etc. Caution: the more qualifications you put on a query, the fewer Arbitron diary-keepers will comply, and the fuzzier the projected ratings.

    One station reaches a steady slice of the population.  If you want to reach a large percentage of your TAs, use the method on How To Select Radio Stations. 

"What's a Grip?"

    One GRP or Gross Rating Point means, "A number of impressions equal to 1% of the market's Target Audience."

     If there are 1,000,000 Persons 18+ in a market, one GRP delivers 10,000 impressions.  That could be one spot reaching all 10,000 at once, or two spots reaching 5,000 each, or eight spots reaching 1,250 each, or any other combination adding up to 10,000 GIMPS or "Gross Impressions".

REACH X FREQUENCY = GRPS

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POP QUIZ: There are 385,340 P18+ in a market.  Your Target Audience is Females 25-44.  There are 126,500 of them in the market. You want to buy exactly 32 spots and 70 Target GRPs. The competitive P18+ CPM is $8.50. Assume all stations in town charge competitive and fair rates(!).

1. What's the market-wide competitive TA CPM?

2. How many TA impressions will you buy?  

3. What's your average target number of TA impressions per spot? 

4. What's your total budget?

5. What's you "Cost per GRP?" 

(Use the calculator on your computer or build a spreadsheet in Excel.  Send me your answers!)

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REACH X FREQUENCY = GRPS

    The more you run a commercial, the more often the same people hear you.  You build "frequency" or the average number of times the average listener has heard you over some period of time.

    If you "reach" 70% of the population 3 times in a week, you are said to have bought 210 GRPs.  70 x 3 = 210.  Two hundred GRPs a week is thought to be a reasonable media weight for a sustaining campaign in a total market.  If you're introducing a new brand, or running a big sale this weekend, you might buy 300 to 500 GRPs in radio alone, or in radio plus some other media.

    Direct Response advertisers usually ignore GRPs. Each spot has to pay off on its own, whether it runs once a week or 50 times.  (The intricate GM/.C relationship between reach and frequency and response is covered in GM/C=X v CICO.

Is Radio Cheaper than TV?  Radio delivers high frequency against narrow cumes over time.  TV can reach a broad audience fast.   A general rule of thumb is that in any local market: 100 Radio :60 GRPs   cost about half as much as 100 TV :30 GRPs.

Is Radio Cheaper than Newspaper?  Newspaper rates are based on total circulation and ad size.  Car Dealers run huge, nearly identical ads in the weekend Automotive section, pay dearly, and get mostly Highly Qualified Active Shoppers. If your TA is over 40 and you have some sort of a deal to offer, newspaper is usually pretty effective.  

Is Radio Cheaper than Outdoor? Billboards hit everyone.  Rates are based on monthly traffic past each location. If you can squeeze your message into 32 letters, outdoor is a great medium.  Radio + Billboards = "The Poor Man's Television."

 

 

"How many spots should I buy?"

One or two spots a week won't do much. Radio is a frequency medium.  You use it to build frequency over time against relatively small slivers of people in a market. 

Big Agencies use expensive Arbitron data and software to devise various combinations of reach and frequency to add up to their Target GRPs.  Here's a method that costs Nothing.

 

    Optimum Effective Scheduling

    Several years ago, Arbitron came up with the OES Formula that helps you get an excellent combination of reach and frequency on any one station.  Here's how it works:

1. Divide a station's "weekly TA cume" by "Average Quarter Hour TA" to get "Turnover."  (Turnover is the number of times the AQH has to refresh itself to add up to the weekly cume.)
   

2. Set a target frequency you want in a week - say 3. 
    

3. Multiply turnover times 3.3 (~X.X~) and round to the nearest whole number.
   

4. Buy that many spots a week.
   

5. You should reach half or more of the cume 3 or more times per week. 

    Arbitron thought all buys should be ROS (run of station), ideally Monday 6a to Sunday 12M. 

The problem with that idea is that the entire week includes a lot of overnight "quarter hours" when few people are listening. That reduces AQH in the TURNOVER equation which increases Turnover itself, and leads you buy too many spots that beat dead air.

   I prefer to use OES to plan day part buys on stations. The turnover in most day parts (M-F 6a-10a, for example) is in the 4.5 to 6.5 range.  So I only need to buy [3.3 x 4.5 to 6.5] spots each week.

"What about Network Radio?"

   Large wired networks such as Premiere and ABC feed hundreds of stations daily programming (such as Rush Limbaugh or top-of-the-hour news feeds) with built-in spots.  You buy a national audience at much higher per spot costs, but often at half to a quarter the cost per thousand compared to local spot rates.  See Network Rollout for more.

   

"Can I run an infomercial on radio?"

   Yes!  Many AM stations sell half-hour or hour-long segments, usually on Saturdays and Sundays.  Prices vary with ratings and day part.  You have to track Media Cost Per Sale against the flat rate cost of the time itself. There's a new move to allow advertisers to webcast their programs from links on the station's web pages.  (For example, WMAL-AM in Washington, DC. will sell you a 15-minute "commercial" that runs only from their web page on weekends.) 

"How do I get lower rates?"

I can't give away all my secrets, but here are a few general principles.  Some seem contradictory, but they all work.

 

   Buy Early.  

   If you can negotiate with a station two or three months early, way before they're sold out, you can often get much better deals, especially if a station has taken a ratings hit in the last Arbitron. 

   Buy Late.

   Sometimes big national or local advertisers will pull out of a station at the last minute.  If the reps know you are willing to deal - at the last minute - you can often get great opportunistic buys.  

   Mix Fixed with ROS.

   "Fixed Position" means you contract for a specific day and daypart (e.g. Thursday morning drive).  "ROS" means "run of station."  You let the rep decide when to place the spot.  To get a good combination of reach against weekly cume AND frequency AND price, you should let your rep place 20% to 25% of your budget in available, lower demand, holes in the weekly line-up.

   (DR advertisers can also buy at pre-emptible or remnant rates, which are quite low.  However, if anyone  comes in at the last minute who is willing to pay $1.00 more, your spot won't run.)

   Start in January!

   After Christmas, local retailers takes a breather, demand drops and so do prices.  Knowing this, stations often put special packages together - 20 to 40 spots a week at 30% to 40% off rack rates. You can often book up to 13 weeks in a row at these prices. 

   Make Owners Compete.

   During the past decade, most local stations have been bought up by Clear Channel, Infinity, Beasley, Cox etc.  When two or more holding companies own several stations that reach your audience, you can often get the reps to compete for your entire budget - if you promise to place it all on their stations.  (Use this technique sparingly, though.)

   Buy A Lot.

   Radio time is somewhat of a commodity.  The more quantity you buy, the better deals you'll get.  It's usually better to ask for extra spots, or promos, or :10 IDs than for lower prices, though. A $10,000 a week schedule on a station for four weeks or so ought to get you at least $500 worth of freebies.

"What about Creative and Production?"

A good radio spot costs much less to write and produce than a good TV spot. 

If you write your own, your rep can get the station announcer to read the copy for next to nothing.  It will air right next to every other spot he reads.

If you use a local Production company or studio, they'll bundle the costs of creative, studio, talent and music into one fixed price.  I estimate the Costs of Radio Production and test media budgets all at once, and in some detail.

There are some useful articles on nuances of strategy, production, copy, planning and tracking on my Advanced Concepts of Radio page.

Lastly, here are a few articles that may help you understand the economics of radio (if they're still on-line):

Advertising Media - Hairong Li, Michigan State University

Reach the Masses With Radio Advertising - Kim T. Gordon

How To Tell If An Advertisement Costs Too Much - Rich Harshaw, CEO, Y2Marketing

I hope all this helped. 

Let me know!

Advanced Concepts of Radio

Radio Glossary