6-14-2013
Many years ago, three months into my first GM job, the owner of the radio station flew in for a visit. We were in my office and we were reviewing some recent advertising orders. There were two of them that included a few of (what I then called) ?no-charges.? He asked me the following question, ?What does it cost you to put a commercial on the radio station??
Without really thinking, I replied, ?Well, we?re getting about $60 in morning drive, $50 in mid-day?..? He then stopped me and said, ?You didn?t hear my question. I asked you 'How much does it cost you to put a commercial on the air?'.? Then, I understood and wisely answered that I had no idea. Being the consummate teacher, he then said, ?If you and I go down to the local appliance store, that owner can tell us exactly what he paid for that washer and dryer. He can tell us exactly what he must sell it for in order to stay in business. That friend of yours who owns the Chevy dealership, he not only can tell you how much it cost him to put a Tahoe on the showroom floor, he can tell you what it costs him every day that it sits there, unsold.? Then he asked me the following questions and here are my answers
1. What does it cost you to run this radio station? I said, about $108,000 a month. He then said, ?Let?s call it $120,000 because you?re going to do a little promoting this spring and fall and hire a couple of more people.
2. How many commercials do you run an hour? Twelve, I answered.
3. What are your most sellable day-parts? I said weekdays, 6 a.m. to 7p.m. and Saturdays 10 a.m. to 3 p.m. We weren?t selling much inventory, as of yet, at night or on Sundays.
4. So, of your most sellable days and day-parts, what would you consider a good sell-out percentage? 90 percent, I answered. Then he said, ?It costs you $120,000 a month to run the station or $27,692 a week. You have 12 units an hour in sellable inventory, 13 hours a day five days a week, 6 a.m. to7 p.m., and five hours, 10 a.m. to 3 p.m. on Saturday. So, you have 70 prime selling hours each week at 12 units an hour totals 840 commercial units a week times a 90 percent sell-out gives you 756 commercials a week. Divide your 756 sellable units into your weekly cost of $27,692 and you now see that you have a current actual cost of $36.62 in every commercial unit you air. Now, you know what it costs you to put a commercial on the air. As you grow the radio station, sell more night and weekend inventory and/or increase your rates, the picture changes and your profit margin grows." Then he closed with this statement, ?My point is that when you decide to give away any of this inventory, just realize IT?S NOT FREE! You?re choosing to do this AT OUR EXPENSE!
I?ve never forgotten this lesson. My owner always said, ?I?m not a radio man. I?m a businessman that owns radio stations.? Throughout the following decades, I always knew what it cost me to put a commercial on the radio and anytime I ever decided to ?bonus? a client some commercials, I never referred to it as ?bonuses," "no-charges" or "added value.? I?ve made it very clear that the radio station had made the decision to provide this additional impact at OUR EXPENSE! Because in reality, we do, indeed, have a cost in every commercial.
What does it cost you to put a commercial on the air?
Rob Adair is the President of Pinnacle Solving. His company provides revenue growth solutions, branding and differentiation strategies to radio and other industries. Adair is a former radio industry COO and Sr. VP overseeing 25+ stations and multiple major markets. He can be reached at 405-641-0458 or by e-mail rob@pinnaclesolving.com
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