If you've found this article on , you've likely had some success promoting Your Thing in other media, such as TV, Direct Mail, or via your own website.

You understand the basic-basics: media costs money; response rates vary with media vehicle and message; conversion rates are crucial.

But how does all that work in Direct Response Radio?

    You hear the same commercials for the same brands running over, and over, and over again on your own favorite radio stations and wonder, "They must be making money.  Can we do that?  How?"

    All those Direct Response Radio commercials stay on the air for the same three reasons:

All three variables - response rate, conversion rate, and media cost have to be in sync. This article explains how all three work together.  (Along the way you'll be invited to learn more on how they each work separately.) 

The Basics of Direct Response Radio Advertising also include three separate management issues, which we'll discuss in turn:

This is a longish article. A hard copy might be easier to read. Ctrl + P.

The concepts discussed here will help you complete my Free Planning for ROI Excel workbook. Get one before you leave this site.

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The Basics of Direct Response Radio Advertising.
   The Message.

    Most Direct Response Radio commercials promise fast relief from some sort of Emotional Pain.

    It is rarely enough to rattle off a list of generic features & benefits.  The advertising and the product or service must address real problems shared by a fair number of real people.

    Effect Direct Response Radio copy flows from a solid Brand Promise, which in turn flows from succinct, truthful answers to Seven Easy Questions.  That process is outlined on Logical Analysis Leading to a Leap of Faith, and will be your first task when you start Planning for ROI.

    The accuracy of your Communications Strategy and the content of your advertising are more important than the nuances of production. How you decide to execute your Brand Promise depends on several factors, rational and otherwise.

    Many first-time advertisers prefer to run Urgent Announcer copy. "Gee, all the Other Guys use basso profundo throaty voice-overs.  We'd better get one, too!"

    When your Urgent Announcer copy burns out (or if you want to avoid burnout altogether), you might consider running creative that stands out from the Daily Drone. Real People Radio is one option.

     In any case, if you approve the copy, it will run at least once. 
If your prospects approve the copy - and respond - it may run again.

    How you measure "approval" and "response" as well as all the other rational workings of Direct Response Radio advertising are the subjects of the next section.  Better fire up your hand-calculator!

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The Basics of Direct Response Radio Advertising.
   The Numbers.

    Whatever arena you choose to play in - local spot, market-wide remnant, satellite, streaming, or network radio - or whatever copy style appeals to you personally, you must earn an acceptable Return on your Investment.

    You must run on stations and programs that deliver a goodly number of people who match your Target Audience Demographics  (Exercise II in my Free Planner), and you must run often enough to be heard by this week's Cume Quota. 

    Most DR advertisers use CICO (pronounced "Chico"):
        Cash In : Cash Out. 

If you can only afford 38% of $50.00, i.e. a $19.00 MCPS, you have to fix something.  But what?

CICO usually says, "Buy cheaper commercials!"

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CICO can only compare two stacks of cash.  CICO cannot tell you anything about CPM, response rate, or conversion rate.  In 1993, after 18 years in the Big Agency business, I thought it was high time someone came up with a better way of measuring Direct Response Radio results using the same numbers that are readily available to all advertisers.  It might as well be me.

Media Cost per Sale (MCPS or X) is always a function of three dynamic, semi-independent variables, whether you choose to track them or not.

    In all Direct Response Radio campaigns GM/C=X.

    Let's define terms.

    M Measures True Media Cost. 

    One Gallon of Radio is 1,000 Gross Impressions. 

    If a commercial on WXYZ-AM delivers 6,500 GIMPS (say, among Males aged 25-54) that's 6.5 M25-54 Gallons.

    If that commercial costs $40, then M is $40/6.5 gallons.

    M = $6.15.

   At an average M of $6.15, your $12,500 media buy delivers about 2,000 gallons of radio (2 million GIMPS).

   $12,500 / $6.15 ≈ 2,032.

   In practice, you might run dozens of commercials a week in several different day parts on 8 to 10 stations covering two or three markets.  Add up the hard dollars.  Divide by the soft gallons. 

    G Measures Response Rate.

   How many Inquiries (calls, clicks...) do you get for your $12,500?Say you record 1,750 total calls or clicks.

   You bought 2,032 gallons of radio.  You got 1,750 inquiries.  The ratio 2,032 / 1,750 = 1.161.  On average, 1.161 gallons produces one inquiry.

   G = 1.161.

   Your Cost per Call or Inquiry (CPC or CPI) is obviously $12,500 / 1,750 = $7.14.

   Since each gallon costs $6.15, your cost per call was also G x M.

    $12,500 / 1,750 = $7.14
    1.161 x $6.15 = $7.14.

   Note also that myriad combinations of G and M will produce the same Cost Per Call. The stronger the commercial (low G), the more expensive and popular stations, day parts, and programs you can buy. The weaker the commercial (high G) the lower the M you can afford.

    C Measures Conversion Rate.

    You converted 500 inquiries to sales.  So your conversion rate was 500 / 1,750 = 28.6%.

    C = .286.

Direct Response Radio Conversion exercises so much leverage on MCPS that I've given the subject its own separate article. It behooves you to read it before you spend nickel one.

    X Measures Media Cost per Sale.

MCPS must be an acceptable, affordable percentage of revenues, or you'll be out of business fairly soon.

According to CICO:

    $12,500 / 500 =  $25.00.

Unfortunately, he can't tell you why.

According to GM/C = X:

    (1.161 x $6.15) / .286 =  $25.00.

Fortunately, I can. 

The main reason I track G, M and C separately is that all three variables are dynamic and will change, sometimes dramatically, over time.

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The Basics of Direct Response Radio Advertising.
   The Budget.

    In Exercise 3 of my Free Planning for ROI.xls you get to build your own budget.  Meanwhile, let's apply some of the numbers above to a hypothetical budgeting problem, shall we?

    Assume you sell a World-Beating Product or Service for $195.00.

    You've run some TV or newspaper ads, and your in-bound TMs convert about 28% of calls to sales.

    Half of your first-time customers buy a second time.  Of them, 85% buy a third, fourth...nth time and generate about $600 in additional sales.

    A hundred customers will, therefore, generate about $55,000 in Total Downstream Revenue.

     

    Here are three questions for you:

    The specific budget for any brand will evolve over time on a pay-as-you go basis.  So the answer to Question 2 is, "It depends..."

    But at your price point and initial conversion rate, I'd recommend you start out budgeting 38% of the Total Downstream Value of a new customer.  

    If you wanted to generate, say, an additional $1.8MM in Year I revenues, you'll need to attract about 3,400 new customers and about 12,000 inquiries. 

    Simple arithmetic (thank goodness for spreadsheets, eh?):

    Why on earth would you spend $208 to make a $195 sale?  Because the average first time customer generates about $550 in revenue!  (By the way, you might spend some of that $208 on reminder emails, postcards and the like.)

    What would have to happen to hit that Target X of $208 in Radio?

    Let's say you run some hard-hitting Urgent Announcer copy in remnant radio, at $3.50 per gallon, or on Sirius/XM at $2.15, or in local buy-direct-from-the-station at the aforementioned $6.15.

    Your breakeven G in each case (G = CX/M) would be:

    Those look like pretty easy Targets.  On Sirius/XM you need only one call for every 27 gallons! 

    But let's say we test some Real People Radio on a few local stations and cut breakeven G by a third, to 6.252.  We run those spots in remnant and on Sirius/XM at much lower CPMs, and you get the same response:

    At the same C and G your Media Cost per Sale drops rather dramatically to an average of 16%!  So after suitable testing, you can rewrite the initial media Budget:

    Question 3.  How much should you spend to Test Radio?  For how long?  On what stations or networks and in which markets?  How much will creative and production cost ("What! They're not Free?")?
And how soon can you get started?

    The short answer is that you should spend about half your Month I budget to Test Radio.  The exact answer is... well, if you've come this far, you know where all the answers are:

    Most entrepreneurs and brand managers heartily embrace my approach to Communications Strategy. 

    A few are a little unnerved by my Executions ("They're, well... different."), despite my track record of proven effectiveness. 

    But most prefer me to do the GM/C=X number crunching.  After all, it involves sixth grade arithmetic.  And Sixth Grade happened a long, long time ago. 

    But Direct Response Radio Advertising is primarily a Numbers Game.

    And numbers don't lie.

    My number is (407) 895-3092.

Advanced Concept: The longer the time lapse between Initial Inquiry
and Final Sale, the less likely the latter will occur.

Act Now!