Understanding radio sales pricing strategy can make it easier to make sales. That’s why we are covering it up front as part 2 in our 22-part series Getting Started with Radio Sales.
So here is the question, how do you figure out how much you should be charging?
It’s possible to significantly increase your sales by increasing or decreasing your spot rate.
In simplistic terms if you decrease your rates it will be easier to sell so there is a good chance you will make more sales e.g. 10 people pay $100 each = $1000 in sales.
If you increase your rates, it will be harder to sell but because you make more money for each sale you make you don’t need to make as many – e.g. 2 people pay $500 each = $1,000 in sales.
In both examples given, the outcome is the same $1,000 in sales, but the reason you would increase or decrease your rate is important to understand. If you have high rates when you should have lower rates, then it will be much harder to make sales.
Similarly, if you have low rates when you could increase them then you are missing out on income that you could be using to serve your audience. Also, in some cases your low price point may send a signal that your product isn’t as valuable as it actually is.
Pricing low, Why it makes sense in the beginning
You may have noticed that all aeroplanes have flaps on their wings which the pilot can control. When coming in to land, the pilot activates the flaps and they go up, which slows the plane down. And it’s a bit like that with sales. The higher the price is, the slower your sales go.
So how do we put this into action?
If you took every 30-second spot available between 6am and midnight, seven days a week, over the year it’d be 65,700 spots. If you averaged $2 per spot, you’d be banking at least $131,000.
If you are a community station generating less than $3k a month in sales and/or have 20 or fewer clients and charging more than $5 per spot, I would highly recommend rethinking your pricing.
Some of the most common reasons I have come across for people pricing higher than they should be are: Not wanting to undervalue/ bastardise the price; or because the station needs more income than the lower rate would provide.
These 2 reasons are put into perspective when you look at your station’s effective rate. If for example your station’s annual sponsorship income is $70,000 then your effective rate is $1.06
Your station’s effective rate is your total sales income divided by the number of spots you have available.
Effective Rate Example:
- There are 10 x 30 second spots each hour (assuming you play 5 minutes every hour.)
- Useful air available = 18 hours a day – Run Of Station air time (is usually considered to be between 6am and midnight)
- 365 days a year
- Total annual sponsorship income $70,000 per year
10 spots x 18 hours = 180
180 spots a day X 365 days = 65,700
$70,000 annual revenue divided by 65,700 = $1.06 per spot effective rate
There are a lot of stations wondering why it’s hard to make sales, but they’re charging $16 dollars/spot in their rural/regional town.
The first station I managed had just this problem they were charging $16 a spot and had very few clients. We dropped the rate to around a dollar per spot gained a whole lot of clients and then gradually increased rates over time and in the process, we increased the station’s income by 300%.
Say you charge $16 per spot but you only sell $197,100 a year, your effective rate is $3 per spot and you would have a lot of unsold spots.
Could you make more sales by lowering your rate to $8? I bet you could.
While dropping the spot rate it’s important to note that charging a reasonable monthly or weekly price is an important part of this pricing strategy. You can do even better again if your package is designed to improve your effective rate as you make more sales. We will talk you through how to do this in our next update.
Make sure you check out part 3 of our 22-part series Getting Started with Radio Sales, where we walk you through the structure of your first sales package.