Radio Advertising Costs Less Than You Think!

"We killed in the last sweeps!" beams the eager young rep from WIYU 106.5 FM, brandishing a  Power Point print-out stuffed with Arbitron Charts. "And we can deliver your hot demo an effective 3.8 times every week. You get 450 total GRPS plus free creative and production!"  You glance at the Net Cost on page four of the Tapscan Contract, nod wisely, and promise to think about it.

Moments later you bark into your intercom: "Madge! Get something on radio advertising costs off the Internet."

As an entrepreneur you have to be an  expert at everything worth doing.  So, do you want to acquire a smidgeon of Instant Expertise in radio advertising costs?  Or just find a cheaper station?

    Perhaps you want to use radio to build your sales exponentially? Here's an excellent example of how I built one recent brand 2000% in 18 months.  Here's another one.   If so, your Key Word Search has fortuitously led you to the right place. 

Radio is a cost-effective media - if you know how to buy it and what to run.

   Compared to television, magazines and newspaper, radio does deliver Target Audiences at very, very low costs.  You can reach, say, Females aged 25-44 for as little as $8.50 per thousand in a local radio :60 or even $1.99 per thousand on XM/Sirius.  The same ladies would cost $30.00 or so per thousand in a TV :30.  A full page color ad in TIME, PARENTS, or COSMO could easily cost $85.00 per thousand impressions.  Most people listen to the radio for 8 to 12 hours a week.  They spend 20 minutes or so thumbing through magazines.

    Radio does reach your prospects when they're in their cars, driving by your stores, or sitting at their computers, a click away from your website.  Radio can indeed deliver Impulse Shoppers quickly and cost-effectively.

   Radio is also a misunderstood and poorly sold media.  All 11,000 radio stations in the USA get only 7% or so of our national ad budget.  Local station reps strive valiantly to pry dollars away from local TV and Cable.  They peddle Average Quarter Hour audience numbers and tout their recent huge 2.2% jump in the ratings.  Then they claim that radio is a frequency media.  It's not. 

   Radio is a Loyalty Media. 

   Most people listen to the same two or three local stations every day.  They like the music format, or the talk shows, or the sportscasts.  So yes, $10,000 spent on any one station will deliver more frequency against a thin sliver of your market than $10,000 spent on any one TV station.  But frequency is useless unless it builds response. (Proof.)

    "...an effective 3.8 times every week," on WIYU-FM is massive overkill if your Optimum Effective Frequency is only 2.4 every month.  In that case, you'll get better results if you spread those "450 GRPS" across the four to six competing local stations that best reach, well, Females aged 25-44 or Males 25-54, or whatever your "hot demo" really is.  A consistent presence in radio can build sales, but there's rarely a good reason to put all your eggs in any one station.

 

    Radio Stations Sell Ears, Not Widgets.

    "...plus free creative and production!" sounds like a wonderful deal.  You hand over your Yellow Pages ad.  The rep writes a Memorandum to Customers.  You approve the bullet-point copy.  The station's basso profundo throaty announcer reads it.  Your free commercial runs right after similar Memos from Mattress Mountain, Larry's Lawn Care, and BoBo's Bodacious Bar-B-Cue.  Six weeks later you ruefully learn that the cheapest way to lose $10,000 is to sound just like every other low-budget first-time advertiser on WIYU.  (Oh, maybe that's when you asked Madge to find me?)

 

    So how should you buy radio?  What should you run?

There are 18 articles on my Advanced Concepts of Radio page you can print and read.  That's a start.  And there are 150 or so commercials on The Radio Show page you can use for reference.  You might also want to Clarify your strategic thinking and Slickify your website, in-bound telemarketing, or retail merchandizing, too. 

Or, you could do what you want your own best prospects to do.  Pick up the phone.  Call me,
Peter Burkhard.

(407) 895-3092.

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   If you're just looking for a smidgeon of Instant Expertise, the rest of this page outlines how radio advertising costs are set and how you can make your dollars work harder. 

Every realm of human activity has its own jargon.  I've included links to a Radio Glossary page 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 Wednesday morning at 8am.  You'll get the highest rate that station charges anyone, anytime, ever.

     Wednesday 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 (CPM) 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 WIYU-FM attracts 10,000 of them Mon-Fri 10a-3p, they will charge about $6.50 x 10 = $65 per :60. 

     If your Target Audience is F25-44, and WIYU's Average Quarter Hour Audience includes 6,000 of them, your effective TA CPM is:

$65.00 / 6(000) = $10.83
or
$6.50 / 60% = $10.83

    Clearly the spot cost is far less relevant than the TA CPM.

"Why do some spots cost more than others?" 

     Radio spots are sold like airline tickets.  No one on Delta Flight #652 pays the same fare, even though they're all flying to the same airport.  Local advertisers get different rates based on negotiation, tonnage, timing, and a number of other factors.

    For example, local retailers use radio to drive people into stores for their weekly Once A Year President's Day SupaDupaWowaZowaJamathon sales events.  Since they 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).  Many retailers buy radio stations the same way they buy TV programs, so they tend to waste a lot of money.  Some retailers believe that "Radio doesn't work!"   They lose a lot of customers.

FP-ROS-IP-PP-PI-PB

Fixed Position (FP) spots run in guaranteed dayparts and cost the most.  Run of Station (ROS) spots can run anytime in broad time slots (M-F 6a-8p) and cost less.  Remnant spots that nobody wants are sold at IP (Immediately Pre-Emptible) or PP (Premium Pre-Emptible) rates.  Anybody can bump an IP. Only an FP can bump a PP.  Per Inquiry (PI) spots get a piece of any sales they generate. All rates are negotiable except Pro Bono (PB) spots for charities that run at no charge.

    Here's a recent overview of WJR-AM Detroit.  The Target Audience is P25+ (98% of P18+); the Qualified Audience is P25+ Homeowners (91% of P25+). Notice how AQH and Cume vary with day and daypart.  Prices, set by market demand, yield different costs per thousand.

"What does my audience cost?"

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

     Your own Target Audience CPM is the daypart spot cost divided by the number of TAs listening, in thousands. (See example above.) 

     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 "Cume Ranker"  on your audience.  You'll get a list of all stations ranked by the size of their TA Cume (weekly cumulative audience).   If you add up all the cumes of all the stations in town, the total radio audience is usually about 2.4 to 3.1 times the total population.  Most people listen to three stations.

    You can also ask for certain demographic qualifiers, such as education level, homeownership, children under 5, etc. Caution: the more qualifications you put on a query, the fewer Arbitron diary-keepers will comply, and the fuzzier the projected ratings.

"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 25+ in a market, one GRP equals 10,000 impressions among Persons 25+.  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

    If you reach 70% of the population 3 times, you've bought 70 x 3 = 210 GRPs.  Two hundred GRPs a week is a reasonable media weight for a sustaining campaign in a total market.  Brand Intros need more tonnage up front.  If your main competitors each run 300 points a week, you probably won't beat them with 75.

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POP QUIZ: There are 595,340 P12+ in a market.  The competitive P12+ CPM is $5.85. Assume all stations in town charge competitive and fair rates(!). Your Target Audience is Females 25-44.  There are 126,500 of them in the market. You want to buy exactly 200 Target GRPs.

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

2. How many TA impressions will you buy?  

3. What's your total budget?

4. What's your "Cost per GRP?" 

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

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    Direct Response advertisers usually ignore GRPs. DR advertising has to achieve an acceptable Media Cost Per Sale which is a function of response rate, CPM and conversion.  The dynamic relationship between those variables 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 but fairly expensive unless you buy huge annual contracts.  

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."  People whiz by your Thing while your Jingle plays on WIYU.

 

 

"How many spots should I buy?"

   A precise answer to that question requires a creative test, preferably on the local station that boasts your highest TA or QA (Qualified Audience) cume.  If you can track daily response (calls, clicks, store traffic...) you can determine your own Optimum Effective Frequency in a few weeks, then use OES (see below) to pinpoint future buys.

    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. Cume/AQH = Δ.  ("Turnover" is the number of times the AQH has to refresh itself to add up to the weekly cume.)

2. Multiply target Optimum Effective Frequency (OEF) by 1.1.  (3 x 1.1 = 3.3).  

3. Multiply by Δ and round up to the nearest integer.  Buy that many spots a week in the selected daypart, ideally at ROS rates.

4. You will reach half or more of the cume f or more times. 

    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. Those overnights reduce overall AQH in the Cume/AQH equation which increases Turnover itself, and leads you buy too many spots that beat dead air. 

   I prefer to use OES to plan ROS runs in broad day parts, such as Mon-Fri 6a-8p. I'll reach 80% to 90% of a station's P1s at a significant savings compared to Fixed Position buys. 

"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 when audiences are sparse.  A long-running program can build its own tune-in audience, though. Don't pay more than 12X the FP :60 rate for an hour!  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.

   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.

   Avoid remnant spots unless you are in absolutely no hurry to increase sales.  Remnant spots are cheap because nobody listens to them.

   Start in January!

   After Christmas, local retailers take 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.  A good spot run nine times will out-pull a mediocre spot run ten times.  Standing out works better than blending in even if you sell an absolutely generic commodity.

   If you want to write your own copy, read it yourself, too!  You'll sound more credible than the station's basso profundo throaty voiced announcer. Plus, your friends will all say, "Hey, I heard you on the radio!"  Fame & Fortune Mitigate Stage Fright.

   If you use a local Production company or studio, they may 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.

"Do You Have any Free Silver Bullets for sale?"

   Free advice is a little like Free Lunch.  Nobody will give you enough of either to live on for long.  There are 80 articles listed in the Site Index. The FAQ page answers some unusual questions.  There are 18 useful articles on the nuances of strategy, production, copy, planning and tracking on my Advanced Concepts of Radio page. 

   If you can spare another hour getting ready to increase sales, oh, 200% to 2000% by this time next year, turn on your speakers:

   I hope all this helped give you a little Instant Expertise on Radio Advertising Costs. 

   Let me know!

   (407) 895-3092.

   P.S. Give my best to Madge.  After all, she did find this site for you.

Advanced Concepts of Radio

Radio Glossary