"The financial projections and models behind every DRTV program are perhaps the least sexy but quite arguably as important as any other aspect of the program. There are so many items that you need to account for, so that your projections are based in reality. There's nothing worse than having a commercial that actually works, but the numbers don't support it." Lou Conte, CFO
What are the three most critical components of a financial model for DRTV?
In no specific order of importance, they would be (a) incorporating all costs into the model, (b) understanding the difference between retail and direct-to-consumer sales, and (c) the timing of money.
Incorporating All Costs
Quite possibly the most common mistake would-be DRTV advertisers make is not looking at all of the costs that are associated with the program. For a DRTV/multichannel campaign, you've got to take a hard look at these costs:
· Production – initial and tweaks
· Media – test and rollout
· Tapes – dubbing and shipping
· Shipping – boxes, packing and shipper
· Customer service
· Agency management fee
· Search engine marketing program
· Display advertising program
· Website – design, construction, hosting, etc.
· Merchant services
· Retail Subsidy marketing costs
· Bad debts
Retail vs. Direct-to-Consumer
Most of what we do is a mix of both channels. Clearly some of the costs are different for each revenue stream, and some adjustments need to be made where certain costs are present in one but not the other.
You must also consider the lift to retail sales resulting from direct-to-consumer advertising. Since the cost of retail sales is much higher than direct-to-consumer sales, you need to consider that your direct-to-consumer advertising can produce higher than expected retail sales.
Thus, our models tend to have both retail and direct sales accounted for, along with corresponding revenue and expenses.
Timing of Money
This is a real important point, one that needs to be ironed out long before commercials air – this is commonly overlooked. Due to production schedules, the way TV media is purchased and other factors that impact the media marketplace, cash needs to be in-house long before the media actually runs. If you don't plan out when you'll need to have media money available, you run the risk of having a campaign that's performing well be taken down – obviously the last thing you'd want to happen.
What are the three buckets of cash DRTV advertisers need for media?
The first bucket is for the test. You need to allow sufficient funds to test a wide range of media and read results that are statistically significant. A second bucket is for retesting. Inevitably, some placements will work, some will be marginal, and some won't work. We typically learn from the test enough to make changes to the commercial and media plan, and that's why you often need a retest.
The last bucket is for the roll-out. When we determine the optimal combination of creative, offer and media, you want to have roll-out funds available to scale the program as quickly, but prudently, as possible. As I said earlier, you don't want to start scrambling for money during a successful test. And if a campaign is really successful, you can't have enough cash.
You can download the entire eBook at any time at: http://BS123.acquirgy.net
Irv Brechner has written over 100 published direct marketing articles and 13 books on a variety of topics. He's been a pioneer in online customer acquisition since 1996 and offline for his 35-year career. He has developed Acquirgy.com's "Customer Acquisition Intel Center" (acquirgy.com/intel ) he evangelizes best-of-breed tactics to help companies acquire customers in the digital age. He can be reached at: firstname.lastname@example.org .
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