Direct Response Television is one of those phenomenons that are an unavoidable part of modern life for anyone who watches television. Yet, few of us know much about the nuts and bolts of actually preparing and running one not to mention whether it is something that makes sense for our products. That is why I asked Robert Yusim, the leading expert on direct response in the toy category, to write a blog about it.
Rob began his career working directly with Raymond Kives one of the founders of K-Tel and Quality Dino Entertainment. In 2006 Rob crossed over into the toy category and started Spin Direct, Spin Master Ltd's DRTV division, with the launches of Rocket Fishing Rod, Moon Sand, Storm Launcher and Reflex Heli. Over the past 5 years Rob has launched or licensed over 100 toy product campaigns in the US, Canada and UK. In 2010 Rob launched Product Counsel to provide complete turnkey DRTV services to clients in the toy industry.
In my July article I (very briefly) mentioned a couple of DRTV Metrics, namely “CPO” & “MER” and promised to explain them in a future article. These metrics are very important to plan for and understand in order gauge the relative success of a Direct Response Television Campaign.
CPO is the acronym for Cost Per Order & refers to how much media you are spending to generate a single DRTV order. The CPO is calculated by taking your DRTV media spend for a period of time and dividing it by the number of orders received. The more orders you generate against a DRTV media spend, the lower the CPO. The lower the CPO… the better the results! For example, if you spend $100,000 in DRTV Media and generate 5000 orders, the CPO will be $100,000/5000 Orders, which will equal $20. A $20 CPO is generally considered a good result.
MER is the acronym for Media Efficiency Ratio & refers to how much revenue a campaign is generating against a particular media spend. The MER is calculated by taking your Campaign revenue and dividing it by your DRTV media spend. The more revenue your campaign generates against the DRTV media spend, the higher the MER. The higher the MER… the better the results! In the example above, if the 5000 orders generated $200,000 of revenue, against the $100,000 media spend, the MER would be $200,000/$100,000, equalling 2.00. An MER of 2.00 is generally considered a good result.
Before we launch a DRTV campaign it’s recommended that all companies produce a series of specialized financial documents for planning, which are referred to as The “CPO Model”. The CPO Model documents are designed to provide budgeted breakeven CPO & MER targets as well as projected gross profitability for a particular campaign.
The CPO Model also helps us with inventory planning. Inventory requirements for the TV Offer & Upsells will vary with media spend and levels of consumer response. The CPO Model is designed to scale with varying levels of media spend and response, so we can project potential inventory requirements.
Once we launch our DRTV Campaign and obtain the results, we will want to analyze the results within the CPO Model to compare the actual CPO & MER against the breakeven numbers. By entering in the actual media and response numbers we can also determine the overall profitability (or loss) of a campaign, as well as review inventory requirements and adjust for any additional inventory that may be needed.
Direct Response Television is a very unique business. Having access to the right planning documents & understanding the metrics, will allow your company to best plan for DRTV success.
In the coming weeks, I will introduce a number of topics in the DRTV channel relating to the toy industry. If you have any questions feel free to contact me directly by phone - 204 977 6102 or by email to: email@example.com. © 2011