The first thing you need to know about infomercials is that you DON’T need to be one of the first 100 callers to get that "special offer". As long as you call and have a credit card, you are going to get the deal. It is all a marketing trick to get you to respond that instant. Hence the term “Direct Response Advertising”. They know if you have time to think about it, you probably won’t buy it. But why the tricks you ask? The bottom line is that air time can be very expensive. You need people to buy NOW to make up for the cost of the airtime. In the infomercial world, success can be measured by a ratio of sales to media costs. The goal is to sell enough product to pay for the media costs AND give you profit. Here is an example:
Media Spend = $1,000
Total Sales Made From That Airing = $3,000
Media Ratio = 3/1
Not So Good:
Media Spend = $1,000
Total Sales Made From That Airing = $250
Media Ratio = .25/1
A successful infomercial is usually around a 2.5/1 or higher, depending on the product. The more you can sell of something, the less the ratio needs to be. It is simple math. Now don’t think by getting a 2.5/1 you are going to be a millionaire. That is far from the truth. There are many other costs that go into airing an infomercial. Here are the four big ones.
Call Center Costs. A call center is full of those wonderful people who answer the phone and take your order. I know, you probably thought you were calling the company itself when you ordered, but really you are getting fed to a call center that can have hundreds of other product orders they are taking at the same time. From prison inmates earning an extra dime to operators in India, your call could be directed anywhere. On average you can expect to spend $4 per call. You are charged by the minute, therefore, it is best to make sure your infomercial doesn't leave anything unanswered. It is important to make your infomercial product and offer very clear, cause let me tell you... those minutes can add up!
Fulfillment. A fulfillment house takes the orders from the call center and sends it out to the customers. They package, ship, handle the credit card and payment transactions, take care of returns, have customer service agents and much more. This can ring up quite a bill, especially for returns and credit card service fees. Don’t get scared away. There is good news with this. You can usually pass these costs “secretly” onto the customer. You know when you see “plus shipping and handling" on infomercials? Well, this is what it pays for. There are some instances when the shipping and handling is as much as the product itself! When you see those great deals for $19.95 on the TV, just wait till you find out that it is going to cost you $10 to get it shipped. Doesn’t seem quite right, but oddly enough, people don’t even flinch when presented with these astronomical shipping rates. If you work it right, you can even make a profit off of shipping and handling.
Product Costs. Buy cheap and sell high. Product pricing is very important to get right. You can’t sell too high or no one will buy, but selling too low could put you out of business. They say the minimum you want to mark up any product is by 3 times. So if you buy for $1 you have to sell for $3. However, in today’s world, I disagree. I say you need to mark it up at least 5 times, especially if you don’t have a good back-end product to sell. So you buy for $1 and sell for $5. The reason I say this is to have a cushion. You may not sell as much as you anticipate, and having this markup helps pad the profits. There are creative ways around a higher price, such as payment plans. You always want to test several different price points during your test runs. You will either sell a lot with a smaller margin of profit, or not as much with a higher margin of profit.
Media. Sometimes expensive, sometimes cheap. It is all about finding the right mix and knowing who your customer is. When airing an infomercial, you are airing at DR rates (Direct Response) and not regular rates. What does this mean? Well, in a nutshell, it is the time the show or spot airs. Stations have set times DR programs run. You are at their mercy. For half hours, this is usually early morning and overnight. For spots, this means you will be placed on what is called a “rotator”. What this means is that your spot will air anytime between say, 6am and 8pm. You have no say when or what program your spot will air. You just know it will air sometime between those hours. With DR rates you can also get pulled or preempted without warning (you get a refund of course). What all this means it affordable rates. For a half an hour, this can range from $500 for a locally aired spot, to over $20,000 for a national cable spot. Now don’t get any ideas that you want your spot to air during a prime time show, cause that will cost you millions.