(By Alec Drake) Looking back on forty years of selling begs the question; is there any integrity left in how radio is priced? Recently, Radio Ink featured some isolated examples of radio managers with integrity using fixed capacity and fewer commercials to drive prices up with demand. That should be celebrated – yet what is the norm, and what are most stations (owned by the big three) practicing in pricing strategies and inventory management?
Reviewing the evolution of price and revenue generation can explain why selling it all was not a strategy and why the current use of Yield Per Minute is also subject to flaws.
Sell it All!
The early objective in sales management in the ’70s was to sell all available inventory. There may have been only one station with one rate, and the perishable nature of time pushed managers to ensure everything was sold. Price negotiations prevailed as managers focused on selling supply and hitting a dollar goal. A manager received praise for selling out the station. Sales managers playing golf on Fridays was common as no inventory was left to sell.
Sales management success was redefined when station ownership rules were relaxed and desktop computers arrived in sales departments.
- Ownership Limits: Consolidation shifted thinking on price as supply ballooned when we went from the 7AM–7FM–7TV station rule of 1953 to the 12AM-12FM-12TV station rule of 1985. They were followed by the Telecommunications Act of 1996, which opened the floodgates of change that created the mega groups we have today.
- The Computer: The IBM 386 was a game-changer in the early ’80s. As desktops arrived in sales and traffic departments, they offered more complex pricing and performance measurement. Grid cards with blocks of time across the week displayed sixty-second rates in predetermined increments of five dollars. Demand documented by traffic departments pushed rates from the low end (grid four) to the top (grid one). In the mid-’80s, sales managers added thirty-five rates sorted by day and daypart. The “sell it all” theory of revenue performance appeared obsolete.
AUR (Average Unit Rate) vs. Sellouts Percentages
There are two ways to grow revenues; sell more or charge more. Selling more adds active customers, drives demand, and leads to selling at higher prices.
Thanks to computers, the new marriage of daypart pricing and sellout percentages became a puzzle in deriving revenue goals. The evolvement of AUR (Average Unit Rate) helped consolidate various rates into one number that sales managers could use with sellers and station owners. Salespeople were ranked by their achievement of AUR and praised in sales meetings.
Sales managers had a target to monitor and track each month against budgets and could build models of sellouts tied to rates and forecast revenues. However, many General Managers found sales departments too fluid in their negotiation tactics, and benchmarks were not always hit.
Yield Per Minute (YPM) or AUR in Disguise
YPM (Yield Per Minute) is the latest performance benchmark for sales managers. The variety of 60, 30, 15, and 5-second units sold is balanced by a denominator of sold minutes. Sales managers and owners can convert the sold $75 fifteen-second unit and declare it’s the same as selling a minute for $300. Everyone can “feel” good based on the formula, yet attaining revenue goals is still not always celebrated.
What is YPM missing?
- Unfortunately, this metric only considers what is sold, like AUR, ignoring inventory spoilage.
- You still fail to reach revenue goals if the rate for any unit sold is too low based on poor yield strategies.
- The negotiation range remains broad and subject to individual decisions close to the sale.
- History repeats itself, and once again, we discuss YPM (substitute rate) targets vs. sellout percentage targets to reach a goal.
Circumstance Over Strategy
Pricing and yield management go hand in hand. Where is the right balance? How can intelligent discount strategies contribute to better yield performance? What metrics in 2023 can define sales manager performance? These questions may have to wait until corporate ownership and upper management find a balance between serving Wall St., managing debt, and getting more significant shares of digital ad dollars.
Topline revenues are still king when evaluating sales performance. The current pricing practices in radio for OTA seem to have reversed course even before COVID crushed demand. Returning to the 70s and “selling it all” regardless of margin or yield is not the right path for revenue growth, and protecting the value narrative of product and inventory should still be the top priority.
Alec Drake advises and writes on revenue management. He founded T.R.I.P. “The Radio Invigoration Project” group and publishes a monthly newsletter, The Sales T.R.I.P. both on LinkedIn. Alec can be reached at [email protected]. His previous Radio Ink posts are at Radioink.com/author/adrake.
