1. What is an MER, and how is it calculated?
2. What’s the difference between a break-even and an allowable, and how are those metrics calculated?
3. If you were evaluating an A/B split designed to see which version of a commercial generated better response, what would be the best metric to focus on?
4. What is the No. 1 contributor to DRTV revenue after the main offer and bonus?
5. If you needed to cut a CPO in half, what change to your commercial would be most likely to yield that kind of result?
Don’t feel bad if some of these questions stumped you. In the field, I have been surprised by just how many DR professionals wouldn’t be able to pass this quiz. Indeed, I have been asked to give several seminars over the past few months that explained the answers to questions like these – and most of my ‘students’ were not new hires.
Not that any of them should be ashamed of this. First, the topics I covered were broad-ranging, often including material outside any one person’s day-to-day responsibilities. I respect my students for seeking cross-discipline training. Second, the topics went well beyond DR 101 to DR 102 and even DR 103. I think many companies assume DR 101 (if it is even taught) is enough for their employees: They’ll get to the 102 level and beyond with experience. But that isn’t what I have observed in the field. Thanks to heavy workloads and the natural tendency of companies to silo information, employees never get that next-level learning opportunity.
How about you? Are you ready for an abridged version of one of my classes? Here are the answers to the quiz above:
1. MER stands for media efficiency ratio and is just a fancy way of measuring the return on your media investment (ROI). It is calculated by dividing TV revenue by TV spending, and it is expressed as a ratio; e.g., “2 to 1” with the “1” being implied, or just “2.” This metric is usually shown to the nearest tenth (one decimal place), so something like “1.8” would be more typical. Making things even easier, that number would mean you made $1.80 in revenue for every $1 you spent on TV.
2. A break-even is the CPO at which a DRTV campaign breaks even. Pretty self-explanatory. An allowable is the CPO at which a DRTV campaign loses (common) or makes (rare) a set dollar amount per order. To calculate a break-even, estimate, or calculate your revenue per order and subtract out all costs per order (e.g., costs of goods, transaction costs) – except media costs. The amount you have left over is your break-even CPO. To calculate an allowable, go one step further and add or subtract the predetermined amount of profit or loss. For example, if your break-even is $25 and you want to make a profit of $5 per order, your allowable would be $20. If your break-even is $25 and you’re OK with losing $5 per order, your allowable would be $30.
3. The best metric to use when evaluating response is “Response Rate” since it controls for the most variables. However, since that metric is not commonly used, CPC (cost per call) is also an acceptable answer. CPO is not the best metric because it includes a variable (conversion rate) that is most likely not attributable to the commercial.
4. The No. 1 contributor to DRTV revenue after main offer and bonus is the deluxe upgrade. In my seminar, I use real-world examples to show that more than 25 percent of total revenue can come from converting a deluxe upgrade. Yet, I still see campaigns where a deluxe offer is missing.
5. Repeated case studies have proved an offer change is the only reliable way to cut a CPO in half. That can mean simply reducing the price or increasing the perceived value of the offer with a BOGO or bonus. In my seminar, I make a case for three other potential changes that can significantly impact a CPO, but none are as powerful as an offer change.
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Jordan Pine is a consultant specializing in short-form DRTV and the author of The SciMark Report (scimark.blogspot.com), a popular industry blog.