How Should You Determine Your Radio Advertising Budget?

As 4th quarter approaches, it’s time to look ahead to your strategy and budget for next year. Choosing which marketing channels you want to invest in can be hard enough, but choosing how much to spend on them can be even more difficult.

First, it might be helpful to better understand how radio advertising is priced, and why it can be different depending on the market and station you’re interested in. Let’s take a look.

How Radio Advertising is Priced

Production costs aside (expenses related to getting your radio spot written, recorded, edited, and ready to air), it helps to understand how radio is priced in your target area.

You may be tempted to think about your radio advertising budget in terms of cost per spot. (“How many total commercials do we want to run?”) However, consider that not all air time and not all audiences are created equal. As just one example, placing a spot at 1:00 a.m. will likely cost a lot less than buying a spot during coveted commuter drive time.

It’s important to remember this when thinking about radio pricing. Your budget decisions should acknowledge factors such as CPM, or the cost to reach 1,000 listeners, and AQH, the average number of people listening per quarter hour.

One simple formula to give you a starting point for cost per radio spot:

AQH x CPM = Cost per Spot

This allows you to contextualize your advertising budget in terms of your goals, acknowledging how much is necessary to spend in order to reach the numbers you need to make an impact.

Factors Affecting the Price of Radio

AQH and CPM will understandably vary based on region and station. These factors impact both reach and TSL (time spent listening), which will play a role in how much you pay for a spot. Your competition—in this case, other advertisers locking in air time—can also influence the price. Alternately, a station could be targeted to a specific audience segment, which can impact competition and price.

To sum it up, advertising with a station that appeals to a more general audience in a highly populated area is likely to cost more, because there will be more local businesses vying for spots that reach those listeners.

3 Final Tips

While there’s no standard formula to calculate the best radio budget for optimal results, I’ve put together a few tips to help guide you while you explore different radio stations and make decisions:

1. Your Budget Should Always Determine Your Investment

From the creative execution to your spot schedule, decisions about your radio advertising should be based on a predetermined budget. When you build and launch a radio campaign without a clearly defined budget, you can quickly end up over-spending and then second guessing if your results were worth it.

2. You Get What You Pay For

Just like not all air time is created equal, neither are radio partners. If you’re being offered a price that seems too good to be true, you should start asking some questions.

It’s important to take a close look at their policies as well. Could your ad be bumped out of the position you think you’re paying for? Are the commercial breaks overly long, or is the station willing to cram more spots into a break when demand heats up (like during the holidays)? Look for partners that have policies in place to benefit you and listeners alike.

3. Remember that Radio Drives Results for Other Channels, Too

Radio can be a critical piece of an integrated campaign, even if it isn’t the primary focus. This isn’t just because it functions as a great mass reach and reminder medium; it adds significant results and ROI. Consider these facts:

• Reducing media like radio causes significant drops in ROI for search and social.
• In a case study from Nielsen, one retailer added radio and saw a 48% increase in buyers, a 71% market share lift, and $21 in return for every $1 spent.
• Nielsen also shows that reallocating 20% of a digital only budget to radio can generate a 29% lift in campaign reach and brand impact.
• In an RAB case study, radio personalities endorsements lifted website traffic and conversion by 102% at the peak of a campaign.

If you’re carving out space for radio in your 2020 marketing budget, keep the tips above in mind. You never want to spend more than is necessary, but you also won’t want to spend too little on a powerful channel like radio.

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