U.S. Sales Guru Paul Weyland sums it up

Numbers are a funny thing. For example, the number 37 is the only number (besides one) that can be wholly divided into 111 and 222 and 333 and 444, etc. all the way up to 999.  Here’s another example of funny numbers. Although the earthquake in Oklahoma registered a 5.6 on the Richter scale, Arbitron only gave it a 3.2. What’s up with that?

Hahaha! Just kidding around… this article is about different kinds of numbers, the ones you need to calculate return on investment for local direct clients. The numbers I’m talking about are client gross margins of profit and your client’s average sale. If you don’t know these numbers then you’re blind, and you’re asking for trouble. What kind of trouble? “Cancel my advertising. It’s not working.” or, “You’re too expensive.”

But enough about trouble. You need to know about these numbers if you want to manage your client’s expectations about results. You’ll need these numbers to show clients that advertising with you is not gambling, but instead, a good calculated risk. And, you need to know these numbers if you are interested in doubling or tripling or quadrupling what your clients are spending on your stations.

Average Sale represents the dollar total of all sales rung up on an average day, divided by the total number of sales rung up.

Gross Profit Margin is the percentage of profit AFTER the business has paid for goods (retail outlet) or labor (service-oriented business) ONLY. GPM is calculated by subtracting either the cost of labor or the cost of goods, but not both, from the sales price.

Let’s look at the power you have by knowing those two numbers.

I just spoke with the owner of an auto body repair shop.  He told me that his average sale is $2500 and his gross margin of profit (after labor) is more than 50 percent. So, how many $1250s does he need to bring in per $3,000 per week spent on your station? Fewer than 3? What percentage of your audience would 3 people represent?

Furniture stores operate at a 44 percent gross margin of profit and the average sale is about $850.  So, per $5,000 per week spent on your station, how many $476s must we bring the owner of the store? 10.5 would be the correct answer. Do you think that perhaps your station might be able to muster up two new customers a day for a furniture client? I hope so.  Per $10,000 per week spent on your station, you would need to catch 21 new customers a week. Don’t you imagine that with really good creative that your station could compel four new people a day to purchase furniture from your client’s store?

Home remodelers work on a 30 percent gross margin of profit (after the cost of materials, which is slightly more costly than labor).  An average sale for a kitchen remodel is $25,000.  So, how many $7,500s would you have to bring to the remodeler in exchange for his $5,000 weekly investment in your station?

See how easy this is?

Here’s how it works with lower-ticket businesses. Obviously people buy more low-cost items than they do higher cost things like furniture and cars. Restaurants work at a 65 percent gross margin of profit, after food/beverage cost. Let’s say the average sale for a local restaurant is $25. But what is the value of one new customer to that restaurant? How often will the average customer return to that restaurant? I try to visit my favorite Austin restaurants at least once per month. So, I might be worth at least $300 in sales to that restaurant. 65 percent gross margin would mean $192 left over that the restaurateur could invest back into his business. How many customers like me would a restaurant need to capture per $3,000 a week spent? 15.  A couple of new customers a day is all.

Convenience stores operate at a 30 percent gross margin of profit, after the cost of goods. What’s the value of one new customer to a convenience store, especially if he or she smokes? When I used to smoke, I bought a pack a day, never cartons, because I always believed I’d quit soon.  Cigs cost about 6 bucks a pack. I bought a pack a day. Along with the smokes, I’d also purchase breath mints, gasoline, maybe a lottery ticket, perhaps a magazine or a Coke or a six-pack of beer. Figure that my average sale was probably $10 per day. And remember that cigarette smokers don’t take weekends off. So, $70 bucks a week? Times at least 48 weeks a year? That’s $3,360 in sales, just from me! Thirty percent of that is $1,008. Man! How many new customers like that would I have to deliver per $7,000 spent per week on your station?

Not a bad way to think about asking for more budget, am I right? Once you start selling this way, the magic numbers way, you can never go back to the Neanderthal way you used to sell.

Speaking of crazy numbers, did you know that if you had 15 compact discs numbered one through 15, and you wanted to put each CD in every possible combination of 1-15, and if you had a minute per change…that it would take you 2,486,318 years to do it?

Paul Weyland will be a speaker at the CRA Radiofest next month.

He is the local direct broadcast sales trainer. He helps radio and television sales staffs (and their clients) increase their revenues. Paul can be reached at +1 1 512 236 1222 or at www.paulweyland.com