How Does Media Testing Work To Ensure DRTV Success?

Every time you sell a product there are direct costs involved.  People call a telemarketing service and that costs something.  A product is purchased and that costs something to manufacture and package.  A celebrity was in the commercial and they get a royalty.  A company shipped the product and they get a fee plus the shipping company (like UPS or Fed-Ex) charge shipping costs.

Add up all the costs and subtract them from the revenue received in the sale, and you have a magic number.  The number called “The Advertising Allowable.” What does that mean? Let me give you an example:

If I sell an innovative fancy hair dryer for $69.95 plus $7.95 Shipping and Handling, our revenue is $77.90.  On the other side, if all of my expenses to make the product, package it, and get it out the door are $32.90, then my gross profit is $45.00. That is the “Advertising Allowable”.

So, if I buy commercial time on WCBS for $ 700.00, and I sell 40 hair dryers, my media cost per order, (CPO) is $ 700.00 divided into 40 hair dryers or $ 17.50.  The difference between the $ 45.00 gross profit and the $ 17.50 media cost for each item sold is $ 27.50.  This is my net profit for each product sold.  Since I sold 40 hair dryers, my net profit for that media purchase is $ 40.00 times $ 27.50, which equals $ 1100.00.  Not bad for a $700 media investment.  In fact if I truly had that result, I would be calling WCBS and buying up every time period I could.

On the other side if I would have only received 10 orders, my media cost per order (CPO) would be $ 70.00 which would be a $ 25.00 loss on each product sold, and I would never run on that station again, unless I liked to lose money!

Media buying then becomes a test.  A test to find out if the product can be profitably sold on TV or not.  If the answer is yes, then a roll-out process begins.   If the answer is “No” we either change the creative and start over or end the campaign and look for another product.

This is why Direct Response advertising is called “Accountable Advertising.”  You always get results immediately, and you always can see if your airings worked or did not.  There is no mystery, no maybes, only results.

In the DR business we say that DRTV is “instant gratification” or “instant depression.”
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