Who Really Has the Rate Problem?

In the mid- ‘80s when I first started selling broadcast advertising, my average order for local direct hovered at somewhere between $1,500 and $2,500 per month. Why? Here was my evidence.

· Because that was the range that I had determined was acceptable to Austin, Texas business owners at that point in time.

· Because that was the average monthly order sold by senior sellers at our stations.

· Because that seemed like a lot of money to me at that time.

In other words, I had no evidence. I had nothing. I was pulling my budget numbers out of my rear-end. Then on one bizarre day, everything changed for me and my mind and my income were changed forever.

I had come up with what I thought was a brilliant strategy for an automotive dealership, who at that point was spending what I suggested he spend with me, about $2,500 per month. I was so proud of the idea that I thought it was worth doubling my monthly budget…to (choke!!!) $5,000 for the month.

I nervously pitched my idea to the dealership owner. Why nervous? Because back then, car dealers were INTIMIDATING. I’d heard rumors…some of them even seemed CRAZY to me. Anyway, I pitched my idea and the dealer stared back at me for what seemed like a week, then he squinted and said, “I love it. How much?”

“Five thousand,” I responded.

“A week?” he asked.

I remember my knees weakening, my face draining of all color, and like a thirteen year old boy whose voice was changing, I finally croaked out, “Yessir.”

And he said, “Oh, okay that’s fine. Let’s just do that from now on.”

I couldn’t believe it. A $2,500 per month client was now spending $25,000 in a five-week month, just like THAT. My little naïve mind was absolutely blown. I couldn’t stop thinking about it. I kept going over the scenario in my mind. Like a hot kiss at the end of a wet fist (Firesign Theatre) I suddenly realized that I was the one with the rate issue, certainly not the rich fourth generation car dealer. He was used to making big purchases, in fact, every day he was writing checks to other vendors that made my $5,000 per week look like chump change.

At that singular moment everything changed for me. From that point on I knew that when I had an idea, a plan for my client’s success that was better than his plan, I could charge far more than $2,500 a month…and I would usually get the buy.

Some time later I had another epiphany. If I knew what the client’s average sale was, and if I knew what his industry’s gross margin of profit was, then I had irrefutable evidence that my budget suggestion was well within the client’s ability to pay.

Drought and erosion have done significant damage to my back lawn so this week I’m having it re-sodded. The landscaping company’s estimate for sodding my back yard is $1,500. But his average sale is usually more for sodding an entire yard, not just a portion as in my case. He told me his normal average sale is about $3500. His cost for materials (sod, fertilizer, soil) is 60%, more than his cost for labor which is 40% percent of his bill. So after the cost of materials, what’s left over is $1400, the cost of labor. That means his gross margin of profit, what’s left over after either labor or materials but not both, 40 percent, or $1,400.

So if I were to visit a landscaping company and ask for an advertising budget of $2,500 per week (instead of a month), how many $1,400s would I have to bring that client for him to break even on his campaign? The answer is one and some change. If I brought in two new customers in a week that would be a 12% return on his advertising investment. If I brought in three new customers that week, he would realize a 68 percent return on his advertising expenditure. That would be better than a slap across the belly with a wet squirrel.

My evidence for supporting my bigger weekly budget is the client’s own average sale and his industry’s own gross margin of profit. By using this method, I triple or quadruple what local direct decision makers think they should be spending on my station. By having this conversation I’m also managing the client’s expectations about results on my station. But incredibly, despite this available evidence, very few local direct broadcast sellers ever use this method. Those few who use an ROI method do see bigger orders. I know because I hear some of your success stories every week.