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What Does A Response Cost?by Larry Levis, PresidentLearn more about direct response radio and per inquiry advertisingLead generation marketers love per-inquiry (P.I.) advertising. With per-inquiry, you pay for your advertising based on the number of responses that are generated. The media are paid a fixed fee for each response they generate. If they generate a lot of responses, they get paid a lot. If they generate just a few responses, they get paid accordingly. The number of times your ad runs is not factored into the expense. Probably the most common question I am asked by advertisers who are considering our services is, "What is a response going to cost?" My answer is always the same, "How much can you afford to pay for a qualified lead?" Please understand I'm not trying to be flip. Rather, my question is a genuine one, and it's exactly what you need to consider in order for per-inquiry advertising to work for you. As performance-based advertising specialists, we function as a broker — bringing together advertisers and the media as partners. The key to structuring a successful and sustainable per-inquiry program is to establish a favorable arrangement for both parties. Successful per-inquiry advertisers value the unique dynamic that a performance-based relationship creates for themselves and their media partners. This mutual respect is needed for the model to thrive. Direct marketers who know how much they can afford to pay for each response refer to this amount as their "allowable" cost-per-response. To maximize the number of responses they want to receive, an advertiser should set their allowable at the highest amount they can afford. This may seem inefficient but in fact it is the most sensible thing you can do. The higher the allowable (or P.I. fee), the more participation you will receive from the media, particularly the highest quality stations and sites. More participation means more sales leads coming in the door. So how is the allowable determined? By taking the sales revenue for an average customer, extracting the advertising margin from it, and dividing the advertising margin by the average number of responses (or leads) it takes to generate one customer. This dollar amount is the value of a response to you. Sometimes the type of media used, be it radio, Internet, print, etc., will affect the value of the leads generated by that medium. Some media may yield higher or lower average sales revenue results per customer. Others may yield a higher or lower number of inquiries needed to make a sale. Nonetheless, the formula to determine an advertiser's allowable remains the same. To confirm what an advertiser can afford to pay on the Internet or radio for each qualified inquiry, Target + Response structures a limited but representative test to see if a per-inquiry effort has the potential to roll out. However, determining what the advertiser can afford to pay per-inquiry is only half of the equation. Determining the cost to motivate the media to partner on a performance basis is the equation's other critical half. Quality media have a limited amount of unsold advertising time/space and a variety of excellent options with which to utilize their so-called remnant availabilities. These options range from airing promotions that boost audience levels and yield higher advertising rates, to other performance-based opportunities already paying them a predictable and acceptable return for such remnants. As a result, any new or unknown per-inquiry effort must produce enough income to make it worthwhile for the media to sustain a partnership in the campaign. For many advertisers, the per-inquiry fee just won't generate enough of a pay-out to sustain the media's interest. For these advertisers, per-inquiry advertising is unfortunately not a viable option. On the other hand, for the advertiser that can make a performance-based partnership succeed with the media, per-inquiry advertising can be an excellent source for quality incremental lead flow on a virtually risk-free basis. So what is a response going to cost? I guess the answer remains "how much can you afford?" Your allowable is really the key. Not just for you, the advertiser but also for your partner, the media. Learn more about direct response radio and per inquiry advertisingMeet Larry Levis Target + Response Inc |
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