How To Measure The Results And Profitability
Of Direct Response Television Advertising

Media Buying
Whereas general advertising measures cost per point (CPP) or cost per thousand (CPM), reach and frequency, and eyeballs and awareness, direct response measures profits.  DR media is often referred to as “accountable advertising” because every airing is tracked, and profits or losses are immediately measured.

What ends up being accountable is not the number or quality of the people watching or listening to a commercial, but the quantity of people who actually pick up the phone and order a product or service they see in the commercial.

Because of this type of measurement, DRTV is a very dynamic media buy.  On a daily basis airings are added, subtracted, renegotiated, or cancelled.

Another comparison is the kind of media outlets which are bought for DRTV. DRTV short form commercials are one or two minutes long. Ninety percent of these media purchases are on national cable stations.  Only very rarely is a network buy made.

On the other side, program length advertising (or "long form infomercials") air on 70% local broadcast stations and 30% national cable.

Measuring Profitability
The main way professional direct response marketers calculate profit is with a Cost Per Order (CPO) model.  This model accounts for the direct profits of each product sold and the media costs per order.  Below are the key issues used to develop the model:

Every product sold has costs associated with that sale.  For example, the cost of goods sold, telemarketing, shipping & handling, fulfillment and merchant account costs are examples of these costs.

Every sale creates revenue:  product sold, upsells, membership clubs, and shipping and handling all add up to create total revenue. Subtracting the expenses from the revenues gives you the gross profit of each item sold.

As an example, and for simplicity's sake, let’s just say that the revenue on Dream Eyes' famous Miracle Eye Creme is $29 and all expenses total $14.  That would create a gross profit of $15 per order taken.

If we buy media from a national cable station for $1,000 and receive 100 orders, our media cost per order is $10. Now our profit is $5 per order, which equals a total profit of $500.  Not bad for a $1,000 media buy!

Each airing can then be analyzed by its profitability. This is the basis for creating and managing a media campaign.

Testing Strategies
The next step in media buying is creating a test to find out how the creative production, product offer, and price points impact sales. There are several factors that go into determining how much money should be spent on a test, but the goal of the test is to find out if you have a commercial that is profitable.

The strategies for DR short-form and program length advertising (long-form) are quite similar, but the tactics to achieve results are radically different. Testing correctly is critical, and there are 4 iron rules:

1. Define a successful result before you start!

The diversity of direct response campaigns demands a unique understanding of your specific marketing goals and how to translate your media results into total return on investment.  Marketing models should account for continuity programs, upsells, clubs, retail and catalogue sales.

Brand awareness is an intangible which is difficult to give value to, but will quickly be felt - especially in retail - if you are running enough media.  For every product sold through a DR commercial, between 5 and 10 are sold in retail!

2. Include enough stations to give you samples of how different types of audiences react to your product.

For example, in long-form you might sample about 20 local broadcast stations and four or five small cable stations.  In short form, you might take six or seven cable stations that target your primary demographic. This will give you enough information to draw conclusions. Too little information can be disastrous by inaccurately concluding the value of the commercial being tested.

3. Choose crème de la crème media outlets.

A test is exactly what it says, A TEST.  Everyone thinks they must have a home run, but the fact is that singles and doubles can earn excellent profits. 

Your media buyer should give you the very best media they have which they can prove works for the targeted demographic of your product. If the media is profitable, you can move forward  from a point of success.  If the very best media doesn’t work, then you know where you stand, and you won’t have to second guess any longer.

4. Analyze results thoroughly after the media test is complete.

The purpose of a test is to accumulate enough information to know how to move forward with assurance.  Accumulating this info does not take very long so let the process unfold before you move forward.

Don’t make decisions about the success of your test until the test is completely over and all the results are in.  Each airing can reveal important information. The telemarketing reports have to be compared to the media that actually aired to know the results.

Even in very successful campaigns, clues about rolling out need to be studied.  Which airings were profitable; which weren’t. How many people called vs. how many people ordered. Percentage of upsells taken and average revenue per order - - - these are all important statistics.

A media test usually takes between one and two weeks and the results are finalized in just a couple of days.  Short form media tests usually run in the $10,000-$15,000 range and long form tests usually run between $10,000- $30,000, depending on the quantity of parameters being tested.

If your show tests well, this is where the fun starts. The media roll-out campaign begins.  For several weeks, media budgets increase while results are analyzed to find the most profitable media expenditure.  Sometimes media budgets go up $25,000-$30,000 each week and sometimes they increase by as much as $100,000.00 each week.

Now, live a day in the life of a DRTV media buyer once a campaign is mid-rollout.  Now that is insanity at its finest!!
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For more information on DRTV media testing and accountable advertising, contact the Direct Response Academy at 512-301-5900.
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