Monday, April 21, 2008

Heaven Fresh Infomercial Results

I have written a couple of posts in the past about Heaven Fresh infomercial and I wanted to summarize the results as we concluded the trial in January 08.  To sum it up, this experiment cost us approximately $125,000. A rough breakdown of the figures is as follows:

Total Sales:.............................. $30,000
Product Cost:........................... -$10,000
Production Cost:...................... -$55,000
Media Cost (Air Time):............. -$70,000
Miscellaneous Costs:............... -$20,000
Net Loss:................................. -$125,000

As it can be seen from the numbers above, we achieved an MER (media efficiency ratio) of 0.5  i.e. for each dollar that was spent on buying the air time, the infomercial produced 50 cents in sales.  Even though being on TV does give the company some brand exposure, a micro multinational simply cannot sustain the purchase of expensive airtime without pulling off enough sales to at least cover the air time costs. The rule of thumb is that a direct response TV campaign has to achieve an MER of  at least 2.0 for it to be considered 'viable'.  I used the word viable because, although monetarily we took a hit on this experiment, I still consider it very 'successful' as we ended up learning a lot from our first direct response venture.

Given that the profit margins are just about 10% in our business, it takes one million dollars in sales to cover a loss of $100,000.  As expensive as it might sound for a micr0-multinational to produce and broadcast an infomercial, anyone familiar with this industry knows that the above mentioned numbers are small potatoes even for running quick trial.  If an infomercial campaign takes off, it can produce millions of dollars in sales very quickly.  Obviously, this potential reward simply cannot be realized without a proportional risk attached to it.

This is not the end for us when it comes to direct response, this is just the beginning. We know what to do and most importantly what not to do next time.  Although, we hoped for the best but we also prepared for the worst. Even when we started it, in my mind, it was mostly about going through the process and learning the intricacies of the direct response industry. Obviously these valuable lessons had some tuition cost associated with it.  I whole heartedly believe that the time and money spent on this project are going to pay off for us in the near future. I will try to shed some more light on the things that we did not do right in a subsequent post.

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