As a result, many products tend to be underfunded. And, to my point, one of the first aspects of direct marketing that begins to permeate ones thinking is that of budget discipline. Where one finds real usefulness, of course, is in the evaluation of marketing and media efforts. And a lot of it works well with my own TOE (Theory of Everything). This is, simplified, an example of how we analyzed budgeting for DIRECTV (actual numbers are changed, of course):
| Initial two-year contract is worth | $1,600.00 | |
| Additional revenue per client | $800.00 | |
| Average revenue per client (ARPU) | $2,400.00 | |
| Allowable (per sale) |
20% |
$480.00 |
| Conversion ratio |
20% |
|
| Allowable cost per call | $96.00 |
So, if we had an average revenue per user of $2,400, we could pay as much as $96 per call and still make our numbers, if the call center continues to turn one out of every five calls into a sale. Naturally, we would look at these variables daily:
- Conversion ratio
- Initial contract signed
Now think about how that would affect your own branding television buying:
| CPM | $8.00 | $25.00 | $40.00 | ||||||
| “Noticing” |
High |
Medium |
Low |
High |
Medium |
Low |
High |
Medium |
Low |
| As a percentage |
30% |
15% |
5% |
50% |
20% |
12% |
75% |
35% |
20% |
| Effective CPM | $26.67 | $53.33 | $160.00 | $50.00 | $125.00 | $208.33 | $53.33 | $114.29 | $200.00 |
All of a sudden, you begin looking at media alternatives in a different way.
- Noticingin order to avoid a misleading comparison, we might want to substitute conversion for noticing. In other words, how many people do you estimate will pay attention to your spot? If you are running in very low-involvement programming just to pay low CPMs and you think that only 5 percent to 15 percent will even notice your spot (say, reruns of Bonanza on some strange cable channel at 10:30 a.m.), you might want to reconsider slightly more expensive but engaging programming.
- Negotiationsand it works backwards too. By estimating your noticing factor, you can also negotiate CPMs to arrive at an effective CPM that makes sense.
