UNDERSTANDING COMMERCIAL PRICES
The Cost Of Commercials
The decision to make a commercial is based on ROI (Return On Investment), or what we call in our industry ROA (Return On Ad Spend.) Ad spend on television campaigns can seem complex, but it really all comes down to a few simple things. Understanding the pricing matrix can lead to wiser decisions on ad spend. Let’s simplify things by taking a look at what factors go into pricing.
Some of the things that effect ad prices are intuitive, others not so much. The breakdown looks like this.
1. The channel the ad runs on.
2. The time slot (i.e. overnight and prime time have vastly different prices.)
3. CPM (cost per thousand viewers) M is the Roman numeral for thousand.
4. Geography. Running ads in different areas cost different prices.
5. (Special Prices) During some shows prices are different.
The first two are intuitive. Different channels charging different prices is kind of a no brainier. Of course airing a commercial on CBS is going to cost more than airing a commercial on the cooking network. However, it is important to understand, if you’re selling a new brand of pots and pans, the money may actually be better spent on the cooking channel, but we will discuss that a little later.
Two is the time slot. As you probably already know, the time slot is a major factor. Every channel knows the value of their time slots where prime time is in the evening, and most expensive. Regardless of this, there are cases where ads may be most effective playing in the morning time. An example of this might be a back to school sale before the summer ends. Here a daytime slot may be an effective way to reach the “stay at home mom.” In this case running the ad at a cost effective time may be a good strategy.
The third is not so intuitive. Ads can run locally, regionally, or nationally. If all ads were national then networks would miss out on billions of dollars from local stores. What this means is, you can be sitting across the street from your neighbor, and see 2 different commercials on the same channel, at the exact same time. So the CPM is designed to charge based on how many people will see local, and regional ads. This is effective for the “mom and pop shop.” For a local business like an automobile repair shop, or a plumber, running a national ad would be a fruitless waste of money. I am not driving 100 miles away for a deal on an oil change, or calling a plumber from the other coast. So advertising to me from so far would not make sense. National ads are seen by the entire country, and for that reason the costs are significantly higher. A clothing line that can be picked up at a large chain store like Macy’s would benefit from such an advertisement.
Four can also seem counterintuitive as well. Network prices vary based on geographical locations. For instance, if you run a commercial in Ohio, vs someone running one in California, even on the same channel with the same time slot, and CPM viewership, the Ohio ad is significantly cheaper. Why? Because pricing is effected off of figures such as the cost of living, household income, etc. These factors directly effect how much a business can make from each ad. In essence if people make less, they spend less. In this example minimum wage in Ohio is $5 an hour less than that of California. Because of this networks charge less for ad spend in Ohio making it possible for their local business clients to see ROA. Let’s face it, if networks want the business, there has to be something in it for the consumer, right?
Finally prices may be greatly increased during highly-viewed shows or events even if all of the other factors are the same. The most well-known example of this is, The Super Bowl. The million dollar ad campaign is a famous example, although not completely based on fact. As we discussed in this article many factors go into pricing. Based on these factors it is easy to see local businesses do not pay a million dollars to run an ad, however national ads may be in that range or even greater.
With so many different options and possibilities (1,000’s of channels, time slots, CPM, tens of thousands of geographic locations across the nation, and of course special events and high ticket shows) a comprehensive list of ad spend is impossible. Most companies lump many of these items together, and paint with a broad stroke, vastly overcharging their clients. This is where ENLIGHTENED VISION ENT. shines. We are partnered with Nielson Ratings, the number one tracking company in the world when it comes to targeting audiences through traditional media. Because of this we are able to find the best opportunities for your ad spend money and get you the most ROA. This allows us to work for a lower price while achieving equivalent and greater returns.