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January 21, 2008

Relativity in Radio Advertising

"Sit on a sofa next to a pretty girl for two hours and it can seem like two minutes. Put your hand on a hot stove for two seconds and it can seem like two hours. That's relativity." - A. Einstein

It should come as no surprise that radio advertising is not exempt from Einstein's famed theory of relativity. One of the most notable examples arises when we get the question "what's a good CPO?" or "What's a good ratio?" These questions most often come from people unfamiliar with direct response radio. They haven't run a campaign and they are trying to understand what they can expect.

The problem is that "good" is relative. The CPO or the ratio or the (insert any profitability metric here) can't be evaluated on its own. It is relative to the nature and characteristics (cost structure, customers, etc.) of a specific business. If the cost structure is such that the profit margins are low, that business must achieve a lower CPO to be profitable. If that business' customers are not easily targetable, this will present a greater challenge. Think about financial products. They tend to have large gross margins - perhaps hundreds and hundreds of dollars. They will, by their nature, be able to be profitable at a higher CPO than, say, a product or services that sell for $9.99.

To find out what a "good" CPO or MER would be for YOUR business, you must conduct a profitability modeling exercise. You aren't ready to start direct response radio advertising until you've done this.

Posted by Jeff Small & Brett Astor at 05:22 PM | Permalink