HOW MUCH SHOULD YOU SPEND ON A TV COMMERCIAL?
In Part One, How Much Does A TV Commercial Cost? We covered why TV commercials can seem to be expensive, gave real-life cost examples, and showed which elements drive the cost of production up.
Here, in Part Two, How Much Should You Spend On A TV Commercial? we’ll discuss the four major budgeting methods you can use to determine how much you should spend on a TV commercial.
We’ll also show you how to arrive at a sensible budget, how to work out a production budget if you’re just testing TV advertising (which is the smartest thing you could do).
And, most importantly, how to save money on your TV ad, without compromising quality where it counts.
SO, HOW MUCH SHOULD YOU SPEND?
This is a better question than “How much does a TV commercial cost?” There are a number of ways to work out how much you should spend. And they mostly come down to doing what you would do with any business expenditure or investment: research and budgeting.
START BY GOING UP A LEARNING CURVE
Spend half an hour online, looking at TV commercials in your product category and outside it. Note the URLs of the ones you like and the ones you don’t like, and supply them to the copywriter or director. This has two benefits:
- It is a great short-hand way of providing a set of creative guidelines so the copywriter can instantly understand what kind of commercial you’d like to have, and can create a TV commercial that resonates with your business and your market.
- More importantly, the writer or director can check out the commercials you like, and tell you how much they cost to produce and why. That way, you can understand production costs with direct examples, and manage your budget and your expectations accordingly.
UNDERSTAND WHAT YOUR COMMERCIAL NEEDS TO DO
15 seconds? 30 seconds? 60 seconds? Brand awareness can be increased with a 15 second commercial. But a Direct Response commercial has to deliver a complete sales pitch to generate immediate response. And that takes longer than 15 seconds. You can get away with a simple, inexpensive, text-and-voice over 15 second commercial. But for a 60 second commercial, you’ll need to produce more than just text on screen to hold viewers’ attention.
There’s more information here on what makes a Direct Response TV commercial work. And here you can find information on the differences between brand, retail and direct response campaigns.
HOW GOOD DOES IT REALLY HAVE TO LOOK?
If you were going to see a new client or customer, would you wear your cheapest clothes, or would you make an effort to dress well? Would you carry your documents in a briefcase or a supermarket bag?
Well, your commercial is going to introduce you, your company and your product to hundreds of thousands, or millions of people who may or may not decide to become your customers.
There’s no second chance to make a first impression. And no consumer will reward you with their custom because you managed to pull together a cheap and dirty TV ad.
Credibility is the key. Commercials with little credibility need massive repetition to generate response. So what you didn’t spend on the commercial, you have to spend on media to get a result. And even then, the result is compromised.
Your commercial is your shop window, your showroom, your factory, your product and your sales team. How well it represents your company and your products is determined by the budget.
Of course you don’t want to spend too much, but you don’t want to spend too little either.
WILL IT WORK WITHOUT CREDIBILITY?
Consumers who watch your commercial don’t care how much or how little you spent on it. They’ll simply compare your ad to the majority of commercials they see on TV (most of which will have cost significantly more than yours).
And if yours is the commercial in the ad break that is below standard, looks amateurish and cheap, don’t expect respect or response.
FINDING THE ‘GOLDILOCKS’ POINT
You have to work with your copywriter and/or director to find the Goldilocks Point: Not too expensive. Not too cheap. But ju-u-ust right. There are a number of ways of working this out. You have to decide which one fits your circumstances:
1. THE PERCENTAGE METHOD
Many companies use a percentage of their media spend or marketing budget as a rule-of-thumb guide to their production budget. This can work well for some budget ranges, but can get well out of hand at the lower and upper end of the budget scale.
One national brand client I worked for required his commercials to have an effective life of two years, and insisted on 10% of his annual ad budget being spent on production, leaving 90% for media. Sounds reasonable, right?
Here’s how it worked out:
- His Australia-wide TV advertising budget was $2 million per year
- 10% of $2 million resulted in a production budget of $200,000
- But the ad had to run over two years, remember? So that made it $400,000
- Finding meaningful ways to spend $400,000 on a 30 second commercial is harder than you think
2. THE SLIDING-SCALE METHOD
This is a variation of the % method.
Smaller advertisers need to spend proportionately more than 10% on production. And should aim to produce a commercial that will work (with only minor revisions) for at least two to three years.
If your two year advertising budget is likely to be $50,000, $5,000 won’t get you more than the bare minimum commercial. So you need to use a sliding scale.
Over the years, this is how we’ve worked out approximate, sliding-scale budgets for clients who don’t require extraordinary location shoots or monumental special effects:
10% is about right for two year ad budgets of $200-500,000.
If your guesstimated two year ad budget is likely to be lower than that, spend proportionately more on production: 25 – 30%
If your guesstimated two year advertising budget is likely to be higher, spend proportionately less on production: 5 – 10%
3. THE ROI METHOD
A TV commercial is a vehicle built with the purpose of generating sales.
You must invest in what is necessary to build an effective sales vehicle, while drawing a line at the point where spending more will not bring in additional, profitable sales.
Your knowledge of your business, your customers, and your pragmatic common sense is required here.
Start with a basic commercial budget (see above) and then work out which extras will make a difference to the results, and which will waste your money.
For example: How much more will the commercial sell if it features a famous person ($50,000+) instead of a good but relatively unknown $5,000 presenter?
If you’re selling widgets, you’ll never recover the cost of an expensive personality in your commercial.
On the other hand, if you’re selling big-ticket items: property, say house and land packages, or luxury apartments, the personality only needs to make one or two additional sales to cover their fee. After that, they’re making you money.
If you wonder how companies can afford the millions it costs to have Hollywood actors in their commercials, don’t forget that they’re running those campaigns globally. And the millions that the actor gets paid can be amortised across world-wide sales which could figure in the billions of dollars.
But back to reality. What if we ditched the helicopter shots and replaced them with crane or quadcopter shots (saving $7-10,000)? And if we can get access to a building overlooking the location and ditch the crane, we can save even more.
Will still photographs of happy customers be as effective as sending a crew out to shoot video in half a dozen satisfied customers’ homes across the state (2 days shooting plus travel – $4-6,000).
Using the ROI method of determining a budget forces you to evaluate each component of your commercial and apply strict business sense.
And because you question the value of everything in terms of response, you’re less likely to get talked into expensive but unnecessary gimmicks by your creative or production team.
4. THE “IF I LIKE THE IDEA I’LL PAY WHAT IT COSTS” APPROACH
Noooo! I’ve had this said to me a few times. It worries me. What it means is, if I can figure you out and come up with a TV concept that really grabs you, you will pay me heaps of money for production.
How should I respond? Should I forget about your consumers? Forget about a carefully engineered sales message? Forget about strategically placed calls to action? Forget about cost-effectiveness and your ROI? And simply present a big-budget idea that knocks you out of your seat?
OK. Bugger selling your products. I’ll just dial up the feature film or comedy writer. It’s easier.
Paying for something based on how much you like it is not a sound business strategy. It’s indulgence.
WHERE BUDGETING GETS TRICKY
If you just want to test TV advertising, you’re not going to commit a whole 12 month media budget in advance.
Say your test media investment is $10,000. And when you know how to spend your money to generate cost-effective leads and profitable sales – i.e. every dollar you send out brings back two or three – then you’ll multiply the budget and roll out the campaign.
Over time, you could end up investing millions of dollars in media to drive your profitable new sales channel.
At test-stage, you don’t want a commercial with all the bells and whistles. But you do want a commercial that does a great selling job, stands out on TV, and makes you and your product look professional and reputable.
For a $10,000 media spend, 10% won’t buy you a TV commercial. So you’re going to have to exercise some business nous and sound judgement to work out how much you should spend:
1. BUDGET TOO LOW…
If you crunch production costs too low, the media selection could be perfect, but a cheap, under-budgeted TV commercial could kill the test.
And you’ll never know how many millions you would have made if you’d been running a good quality TV commercial.
2. BUDGET TOO HIGH…
If you budget too high, you end up spending money on production that you’d be better off spending on media to get a bigger test footprint covering more areas of potential success.
3. START CHEAP AND MAKE AN EXPENSIVE ONE LATER…
Here’s a conversation I had with a potential DRTV client who wanted a commercial made for less than was reasonable:
Client: “Make the commercial for $5,000 and if it works, I promise I’ll come back and spend $20,000 on a new commercial.”
Me: “If a $5,000 commercial would work, why would you waste $20,000 on a new one?”
THE MINIMUM INVESTMENT TO TEST TV
You need to figure on spending around $15-20,000 for your TV commercial and your first burst of media. Here’s why:
For a Direct Response TV test, you need a longer commercial and fewer spots to get good, accurate results. So you need to spend more on production of your commercial and less on media.
For a brand awareness test campaign you need a shorter commercial, but more spots running for three or four weeks, because brand ads take longer to deliver the return on investment. So you can spend less on the commercial, but you need to spend more on media.
TV advertising, planned wisely, will reach millions of consumers cost-effectively with a compelling sales message which could double or triple your business.
$20,000 is a small investment to create a new sales channel that could quickly grow to become the primary sales channel that drives your business.
WHAT YOUR TEST BUDGET SHOULD COVER:
If you want to test TV advertising, your investment must:
- buy you a commercial that is at least a reasonable facsimile of what you would run if the campaign was a hit and was making you money
- buy you enough media to do a reasonable test across a number of channels, time zones and programmes
There’s a case history on this website about how we built an incredibly successful Direct Response TV campaign for a client, starting with a media budget of $700.
But to achieve that, the client was prudent enough to invest $6,000 in a professionally written and produced commercial that presented his product as top quality, demonstrated it properly, and did a carefully constructed, comprehensive selling job. In other words, a commercial that BUILT CREDIBILITY AND TRUST.
His $700 media test campaign worked (and he’s since sold millions of dollars of product) because he started with an effective, trustworthy commercial.
HOW TO SAVE MONEY ON YOUR PRODUCTION
Here’s what can SAVE you money:
- A small, tight, multi-skilled crew instead of a big bells & whistles production company
- If you have existing footage or high resolution photographs that can be re-used in your commercial
- If you or a staff member can front the commercial yourselves, with style and confidence
- Being specific about the budget right from the beginning, so the copywriter can ‘write to the budget’
THE ABSOLUTE BEST WAY TO SAVE MONEY
Amortise the cost across a number of productions. This means a bundled production package which includes the TV commercial/s, website videos and online video ads.
TV Commercials are expensive because each commercial is unique, hand-made, and totally tailored for each client. With one-offs, economies of scale are hard to achieve.
But when your TV commercial production is part of a package of video marketing resources, economies of scale come in to play.
The shoot is usually the most expensive part of a TV commercial production. But once the crew is in place and set-up, it doesn’t cost much more to shoot additional footage for use in videos as well.
We’ve just produced a 4 minute online/corporate video and a TV commercial, involving four days shooting, for about 25% more than it would have cost to produce the video or the TV ad alone.
Your new TV commercial is going to drive a lot more traffic to your website. And website videos are proven to increase conversion rates*.
So why not commission a series of website marketing and sales videos, and online video ads?
You can increase the reach of your online video media even further, very cheaply, using Youtube, Facebook and Google+.
Bundled productions are the best way to achieve economies in the online video age.
Once the shoot is over, you have a cache of footage that you can re-visit to produce fresh commercials, corporate videos, and online & marketing videos.
It’s a marketing/sales resource that you can dip into again and again, for the cost of a quick edit, to generate leads and sales for your business, for years to come.
FINALLY, BEWARE THE ‘FREE’ TV COMMERCIAL
If someone’s offering you a free commercial with your TV media, you’re paying far too much for the media.
The TV commercials on this website cost between $6,000 and $85,000 to produce. To give you a better idea of what you get for your money, call me on 0412 777 175, or drop us a line and I’ll walk you through the budgets.
*Google, MSN, Yahoo, AOL and other Search Engines give priority to websites containing video content.
*Comscore found that when there was a video directly on the home page of a website people would stay on the site an average of 2 minutes longer, which translated to them being 64% more likely to buy something.
*MarketingCharts.com, 2012: Three out of five people will spend over 2 minutes watching a video about a product they want to purchase.
*52% of consumers say that watching product videos makes them more confident in online purchase decisions. (Invodo).