|
click
for
click for Wealth Creation Materials For Level Eight
Amongst other things, in this lesson you will learn: Everything
You Need To Know About Buying Advertising
Space - but were too afraid to ask!
I promised to reveal the innermost secrets of the mail-order business to
you. One of the most amazing secrets of this business took me
over one year to learn - the hard
way. When I started out in this business, I was young and very naive. I was
wearing my 'Please stitch me up good and proper' T-shirt. You see, I actually
thought (and I'm almost embarrassed to mention it), that in order to make money
in mail-order, the secret was to source a saleable product at a rock bottom
price and advertise it at a higher price. In other words: I thought that the business was primarily concerned with selling
product!
What's that? You thought it was all about this too?
Ah well, you see, this is where I can save you thousands and thousands of
pounds of your hard-earned money in costly, silly mistakes. I spent those
thousands of pounds - and lost the lot.
I couldn't work out why my adverts (which were better than the competition) were
not taking half of the advert cost in orders, yet the competition's advert
appeared week after week after week!
I tried again and again. I reworded the advert. I changed the headline. I
made the product cheaper, and then more expensive. I made the deal more
attractive. In short, I tried everything I could think of to put my advert into
profit. And each time I tried a new
advert, it cost me a grand or so.
I was losing about £400 per insertion. In other words, I was paying
(say) £1000 for the advert, and only making £600 'profit' on the orders -
leaving an overall loss of £400 on the deal. This happened time and time again.
I could never get an advert to produce a profit, and yet the competition were
there week after week. At one point I thought I was going crazy. How on earth
could they afford to keep losing the sort of money I was losing, week after
week? It just didn't make sense.
Well, it took me a year, and about £10,000 to learn what I am about to
tell you. I nearly quit the business. I nearly went broke trying to crack it.
When you hear the answer to the riddle, you'll think it is totally obvious. So
do I - now. I couldn't see it then. You see the difference was that: The competition were buying the space for one third
of the money I was paying!!!
When I found out (and I only discovered this by accident), I had a
hysterical laughing fit! How could I have been so stupid as to miss this obvious
point? Of course they were making money! Of course they could keep appearing week after week after week! They
were only paying three or four hundred for the exact same space for which I was
stumping up nearly a grand a time! If I had been paying three hundred for the
advert, and making six hundred after costs, then I would have been making £300
net, each time the advert appeared. This is called 'making the advert cost' (in
clear profit), for obvious reasons. Making 'double advert cost' means that you
clear £600 after paying for all of your costs and the £300 advert cost.
Anyway, back to the story. Obviously I felt like six different kinds of fool for
being so naive, but then I had not yet realised the fundamental secret of
mail-order.
Here is the secret it took me a year and ten grand to find out:
The mail-order business is all about buying
advertising space and not about selling product!!
Amazing isn't it? And yet, when you think about it, it makes sense. You
see, providing you have a halfway decent product, and the price is reasonable,
then it all boils down to how much you can get the advert away for. To allow you
to understand this, let's assume that you get the advert for free. This means
that you can sell almost anything at any price (although you'd make much more
money selling a good product at a keen price), because the advert is totally
FREE. You can take full pages in The Sun newspaper every day, and half pages in
the Mirror and Express - all for nothing! What could you possibly lose? If only
fifty people a day bought your product from each paper, you'd still make an
absolute killing! If you hadn't made a million
pounds clear profit in six months, then your name would be Johnny Moron.
Obviously, you and about nine hundred other mail-order hopefuls would be
axing each other to death for the privilege of getting your free adverts away.
The Sun would rapidly expand to five thousand pages per issue, four thousand
nine hundred and ninety of which would be carrying mail-order adverts. Another
thing which would happen would be the plethora of products which you would see
in those pages. Products which you had never seen before. Products
which wouldn't stand the faintest chance of making money under normal
circumstances. Products aimed at tiny, niche markets. Who cares? The adverts
are free and so you can 'have a go' at anything and everything - no matter how
wild or improbable.
Now then, I want you to imagine the exact
opposite scenario. Here, the newspapers have decided that they don't really
like all of those nasty, tacky little mail-order adverts clogging up their nice,
clean, news pages. They decide to make advertising exorbitantly expensive (even
more so than it really is!!). The advert we were talking about earlier (the one
I was paying £1000 for) would now cost, say £5000. What would be the result?
Well, instantly and overnight, all (and I mean all) of the unlikely or improbable mail-order products would
disappear from the pages. If you were previously advertising your poodle
clipping shears for £19.50 when the advert was free, and taking (say) twenty
orders, then suddenly this looks, shall we say, a tad unattractive if you now
have to pay five grand to advertise the same product!!
Then we come to the adverts which were just profitable at the £300/£400
rate. These will all disappear too. Next will be the adverts which were making
three or four times advert cost (at the £400 rate). In other words, they were
making (say) £1500 clear on a £400 advert. Now the advert costs £5000, so
they would lose a whopping £3,500 on each advert. They will all pull out pretty
damn quick! So what's left? Answer: Bugger-all, apart from a few 'corporate'
adverts from ICI, Shell, BP and the like, telling you how incredibly
environmentally friendly they have suddenly all become! There would be no mail-order adverts of any
description.
The newspaper would have achieved their aim - to
remove all mail-order advertising from their newspaper. Now let me ask you a
question. How much money in advertising revenue, would the newspaper now make?
Answer: Apart from a few silly corporate adverts - nothing
at all! No revenue. Now let me ask you this: When the newspapers were
(fictionally) giving away advertising space for free, how much money in
advertising revenue, were they making? Answer: Nothing at all.
But you know (from the lesson on media), that the sole reason that
newspapers exist is to make money. There is absolutely no other reason
whatsoever - and you'd better start believing it. Now one of the main ways in
which newspapers make their money is on selling advertising space. Contrary to
popular belief, they don't make much on the 'cover' price of the newspaper (or
magazine). So it stands to reason, does it not, that newspapers are not going to
give their space away for free, OR price it so high that the mail-order boys
will be frightened off. So now we come to the nub of the matter. I have taken
some little time to explain this to you in detail, because I want you to really
grasp and understand this point.If newspapers and magazines will not give space away for free, or price
it ridiculously highly, what price do
they charge for their space?
And, of course, the answer is: Whatever
the market will pay!
Does that mean that there is no 'fixed' price for say, half a page in the
Daily Mirror? You bet your life there isn't! More importantly, the price for
that half page can vary by as much as five to one in price. In other
words, one week you will be asked to pay £5000, the next week you can get the
same space for £1000. Sure, there is a 'fixed', published rate for a half page
in the Daily Mirror (or any other paper for that matter). This is called the
'rate card' price. The 'rate card' is a newspaper or magazine's published 'price
list' of space in the publication concerned. Why
You Should Never Pay 'Rate Card'
Does the 'rate card' price reflect the average
price you could expect to pay in the publication concerned? No! It represents the
absolute highest, top-dollar rate you could ever be insane enough to contemplate
paying!! The 'rate card' price for our half page in the Mirror would be the
£5000 price. The 'rate card' is a kind of 'wish list' from the newspapers. This
is the price they would like to get for all of their adverts. This is what they
consider the space to be 'really' worth. In practice, they hardly ever get 'rate
card' for an advert, and most of the time they get
half or one third of rate card prices. If this is so, why do they even
bother to publish 'rate cards'. To which I can only answer: Search me, guv. Ask me one on sport!
However, if you're a naive little bunny, and you telephone any national
newspaper classified department and say to them: "Hey,
look, I'm a rank amateur in this business, and so green that I could
become the new public relations manager for BP. I was wondering if you could see
your way clear to telling me how much my half-page advert would cost to insert
in your excellent publication?"
They will reply........
"Why certainly sir, our rate card for that advert is....let me see
now... ah yes, £5000."
And you hop away thinking: "Cripes!
That's a bit steep. But if the competition is paying that rate, then they must
be really pulling in the orders". So you stump up your five grand, and
send the advert into the paper. The conversation on the classified desk goes
something like this: Sue: "Here,
John, you'll never guess what! You know that ACME publishing company I quoted
five grand to last week?" John: "Yeh?" Sue: "They've
only gone and sent me a cheque and their advert!" John: "What!!!
You're pulling my plonker!" Sue: (Laughing). "No. Straight up.
Look, here's the cheque." John: "Bank
it, quick!"
Etc., etc.
You sit back and wait expectantly. The advert appears. The phones start
ringing, the first day's post arrives. The results look unpromising, but you
reassure yourself that people need a bit of time to respond, and the post is a
bit slow etc. Next day you get about one third of the post you expected. You put
this down to a hold-up at the sorting office. Next day you get about one tenth
of the post you expected, and the following day you get three letters! You start
to become alarmed. Ten days later, you know you've blown about three grand. You
hastily examine your advert. What's wrong with it? You look at the competition.
Hmm, they're offering a thirty day money-back guarantee and you're only offering
fourteen. Damn! That must be it.
You call Sue (now your friend) on the classified desk. You tell her your
tale of woe. She's biting her wrist to stop laughing long enough to talk to you.
The conversation might go like this: You: "Sue,
I had a terrible response to that advert." Sue: (Sympathetic). "Oh no! Give
it a bit more time. Sometimes the first advert never does well because you're a
new company. People need to see the advert a few times before they're confident
enough to buy from you." You: "You
reckon?" Sue: (Hardly able to restrain her mirth). "No doubt about it. Also, you went in on a Tuesday, didn't
you?" You: "Yes...." Sue: "I think you ought to try a
Friday. It's closer to the weekend, and people are more relaxed." You: (Growing donkey ears). "Do
you really think so...?" Sue: "Definitely.
As it happens, we have some space in this Friday's issue. It's a really great
position. Normally we charge more for a Friday, but since you lost money last
time, we'll let you have it for £4,700."
So you book the space, and increase your money-back guarantee (or
whatever). You've guessed the rest. Friday comes and goes and the response is
about the same as your last advert. You kiss another three grand bye-bye. But
before this, down at the classified department: Sue: "Here's
a riddle for you, John. What company starts with 'A' and has just sent me a
cheque for £4,700?" John: "You're
putting me on!!" Sue: (Waving cheque) "Tum tee tum
tum!" John: "You
jammy bastard!"
Now why would a nice girl like Sue take such enormous pleasure in
stitching you up? Does she hate you? Did you kick her cat once, and she's never
forgotten? Oh no, nothing so personal. Sue is pleased because: She's making a thumping ten percent commission on
each advert she sells!!
And ten percent of five grand is £500. Ten percent of £4,700 is £470.
That makes £970 for taking two phone calls from you! She's probably quite a
nice girl. I'm sure she buys her mother flowers on Mother's day. And I also
happen to know that she's having an expensive foreign holiday this year,
courtesy of ACME publishing!
Meanwhile, you're scratching your head and wondering what the hell could
have gone wrong this time. If you're really stupid (like I was), then you'll
carry on like this until your money runs out, without ever realising that you
could have bought the same space for £2000! You might think that this is
against the newspaper's interests. After all, once you've spent all of your
money and gone broke, they won't ever get any more business from you. But
they don't care a damn about this. You see, there is almost
no end of mail-order hopefuls, all
thinking that their advert is going to pull in the big ones. Also, of course,
there are the serious players (paying far lower rates), who appear week after
week after week. People like you who come along, represent an absolute gift to
the newspapers. It's the cream on top. Total bunce. I mean, if you were actively
selling a product for £2000, and every now and then someone came and gave you
£5000 for the same thing, you would be laughing! Also, the whole thing tends to
be self-generating. I want to explain this to you so that you can avoid one
classic mistake in mail-order: Just because you see lots of adverts, by different
companies, for the same product, don't assume that the product is a 'winner'.
Here's why: As an example (and it's a great example), let's take my Midas Method book. Let's
say that this book has never been advertised before. It's my new, latest
mail-order hot tip. Let's also say I'm new to the game. Okay, I take out my
first advert in The Mirror at £5000. It flops. Other entrepreneurs seeing the
advert don't realise this. They
think: "Hmmm.....interesting."
Sue persuades me to have another go, and so the advert appears again, next week,
and again the week after that (remember, losing heavy money each time).
Other mail-order entrepreneurs see the advert running three or four times in The
Mirror and think: "Hmm, hmm,
hmm.". They think that this is a really neat mail-order product. It's
'paper and ink', so it's cheap to produce. They think they can 'knock out' a
positive-thinking book in no time flat. They know the product is working because
this advert from ACME keeps appearing. So they put together their own advert.
Let's assume that they are also new to the game. They 'phone The
Sun who tell them that their rate card is £7000. "Ouch!", they think, but they stump-up the dosh. After
all, that advert placed by ACME is running and running.
.They also have three or four shots (losing money on each advert,
trying to get it right, trying to copy the ACME advert which must be
working.....). ACME see these adverts running in The Sun week after week. They are losing heavily with The
Mirror and so the penny drops (!). "Aha!",
they think, "How could I have been so
stupid? I've been advertising in the wrong paper. I should be in The
Sun! The readership is far more likely to buy the product, and that other
company must be making a fortune, after all, they've advertised for five
weeks on the trot."
So ACME 'phone the Sun, only to be told that the rate card is £7000. "Cor blimey O'Reilly", ACME think, "but it must be this high because The Sun really works! I'd rather
pay eight grand for something that works, than five grand in the stupid old
Mirror." So they stump-up eight big ones.
Meanwhile, the rival company is doing the exact opposite!! They know The Sun isn't working for
them. They know The Mirror must be working for ACME, so they transfer to the
Mirror!! They each take out another three adverts! (At heavy loss).
Meanwhile.........All the other sharks in the sea are thinking: "Hey,
wowie, zowie! This must be a hot, hot, hot idea! ACME and the other lot have
each taken out eight adverts in the Sun and Mirror. I think I'll try the
same sort of thing in the Express."
And so it goes on. Round and around and around. With each company
carefully scrutinising the other company's adverts to see where they are going
wrong! More and more operators, large and small, pile in with a 'me too'
product; all losing big money. The only winners are.... the newspapers,
who are rubbing their hands in glee. The bottom line to this is: Trust your own results. If an advert flops dead in The
Sun, it will likely do the same in The
Mirror and The Express. Swapping publications only has a marginal effect on
response.
With the obvious exception that a product suitable for the Times would
not do well in the Sun, and vice-versa. I've seen the above 'merry go round'
happen time and time again. Just because the newspapers are full of adverts,
doesn't mean to say that all (or any) of them are making money! What
Determines the Real Rate For an advert?
So what is it that forces the newspaper to settle at a rate for a
particular space, on a particular day? Why is it two grand one day, and three
the next? Answer: The simple law of
supply and demand! Okay, economics textbooks at the ready. Here's how it
works.
The newspapers have, what they call an 'advertising ratio'. This is the
ratio of space devoted to advertising, compared to the space devoted to 'news'
(or 'editorial' as it is called). Obviously, people don't buy newspapers to read
adverts. They buy them for the news and editorial. It therefore follows that if The Sun decided to get
greedy and devote 99% of the paper to mail-order adverts, and only two
column-inches to news, then people quite simply would not buy the newspaper
again. Circulation would drop to zero, and advertisers would all pull out
because no-one was reading the paper. Conversely, if they only put one, small,
mail-order advert in each issue, then the newspaper would be missing out on a
huge amount of revenue. So the editor decides on an advertising ratio. This is
the maximum amount of advertising he
can take, without seriously pissing-off the readers! A typical ratio would be
one part advertising for every two parts editorial.
OK, now the length ( number of pages) of the newspaper doesn't change
very much, and so this means that every day, the newspaper has a fixed (pretty
well) amount of space to sell. Let's say five pages. Now from basic economics,
you know that if the amount of a product is fixed, then the price tends to be on
the high side. Also, the price will settle quickly at the level of the highest
bidder. Sounds like an auction? Well that's
exactly what it is! The mail-order
people bid against each other, and bid the price up to the level of the day. The
effect of this is that only the strong
survive! By this, I mean that only the products which make quite good money
will be able to afford the rate at which the space is being sold for.
Let's take an example. ACME are trying to sell their 'Midas' book. They
know that if they pay £1000 for the advert in The Mirror, then they will make, say, £300 clear profit.
Therefore, £1000 is the maximum they will be prepared to pay for this advert.
If they can get it cheaper, then they make more money, but £1000 is the tops.
ABC are selling their exercise bikes. They know that if they buy the
space at £1000, then they will make £2000 clear profit. They love paying £1000
for this advert, but if really pushed, they would pay more. In fact their
'secret' position is, that if push came to shove, they would pay up to £2500
for the advert, because they would still make £500. There are lots of other
people with an interest in buying this space, but for ease of understanding,
let's limit it to these two. So here's what happens (and this is a very real
example of what happens in our company, every working day): 1. The
Mirror
(or whoever) telephone ACME and say they have a half page going in tomorrow's paper. What money will ACME put on it? 2. ACME say £700. 3. The
Mirror
'phone ABC and put the same question to them. 4. ABC say £900. 5. The
Mirror
come back to ACME and say that they cannot accept £700, and would be looking
for an offer in the region of £1200. ACME say "No
way, but we'll put £1000 on it." This
is the maximum that ACME can pay, and still make a profit. 6. The
Mirror
'phone ABC and say that they cannot accept £900 and would be looking for offers
at around the £1500 mark. ABC say "No
way, but we'll offer £1300".
Assuming there are no other players (which there often are), then The Mirror will try ACME
again at £1500. If ACME won't budge, then the space goes to ABC for £1300.
This is exactly the way the thing works, day after day after day. Teams
of people on the newspapers spend all day telephoning around their 'prospects'
in an attempt to sell the space to the highest bidder.
In reality, if there were several people like ABC in the game, then ACME
would hardly ever get an advert away. This is because their product is just not
strong enough. Remember, you can sell anything
if the advertising space is cheap enough. So the following rule applies: 'Good' (profitable) product forces out 'bad'
(unprofitable) product. The only exception to this is the 'merry go round' concept I explained earlier. But this is a temporary thing. Eventually, all those players will lose so much money that they will have to stop advertising, and the 'good forces out bad' rule will take over.
This is the end of the free preview
of this part of Freedom Factor. Excerpts taken from all the other chapters
are available using the links in the table below - or alternatively, you can
have instant access to the complete material by clicking the button:
|
