I have been in the trenches trying to sell stations like this. Let me educate you a bit: every ad agency, even where the buyer is a close friend, have zero dollars. That means every business with any significant ad budget is run through an agency. Agencies say no. That's true when you are seemingly a perfect match. The small mom and pop businesses will buy. The trouble is they can only spend about $200 a month, maybe $300 and they do not renew. If you are lucky, maybe 1 in 10 or 20 will stay on. It still takes the 5 to 8 visits to sell them, easily getting down to minimum wage or less and your car mileage is a tax write off.
Why? Mom and Pop businesses tend to be single location businesses meaning all their customers come from their trade area which is usually a few miles from their door. When you have so few listeners that you cannot make an impact in their primary trade area, they don't buy again. Remember the advertised product might not be needed that day, week or month. You don't call that plumber advertising on the station today because you heard their spot but rather when you need a plumber. So, the reach might be a hundred or so, maybe a few hundred, but how many need the advertised product at that very moment?
I can see you thinking what about the products that cater to older demographics? They go to TV and maybe print because they have a guaranteed reach. With poor, if any ratings, you are not an efficient buy. So, sell more Moms and Pops, right? You can, if you can survive on so little money, not to mention the copy writing, production and logging of spots. We used a telemarketer to find them. I put a 1,000 miles a week on my car. All said and done, I spent more than my commission getting the sale. Luckily I had a base salary that covered my living expenses and then some.
Running a radio station has tons of hidden costs. Most populated areas sell land by the square foot. We have about 10 acres, over a million bucks in land alone. Property taxes are about 3% a year. The FCC makes us have a second employee. Electric runs up to $5,000 a month. Add the lease for the office. Add matching social security and workman's comp even though we never had a claim. Add taxes out the wazoo on things like a sign saying what you are outside your door. Then music licensing fees (SESAC's low end for our market is $300 a month and we don't play any SESAC songs but it is easier to pay than be challenged and have to defend ourselves...and they're the cheapest of the three). Did I mention the annual spectrum fee you pay the FCC? How about the contract engineer that wants $2,000 a month to come out if you go off? Sure you share him with several stations, but you need a way to stay legal and get back on the air by tomorrow if something happens. And when lightning hits your station, you had better have the reserve on hand. Don't count on insurance.
And if you think the owner of such a station is rich, you're right. You have to be rich to be able to handle the investment. You can bet they have other businesses, at least one, that gives them an income while they lose or barely scrape by with the station. Why do they do it? In theory, a radio station, even on AM and even a daytime only, has value that far exceeds its potential because there are only a limited number of stations on the dial. Before the crash in 2008, we had offers up to 7 million for a station billing $35,000 a month and just scraping by. It was at the same time another local owner billing about $40,000 a month sold his AM with flea powered nighttime for $8 million. Sadly the same station might sell at 2 million today if you are really lucky.
So, you might gripe about them asking listeners for money but let me ask you what you would do? Sell more spots or ask for some cash from listeners? It costs very few dollars to compose and produce that spot and the full time in the office employee can collect the checks and visit the bank. Do you hire new salespeople, pay them a salary and hope you can beat reality? Oh, you say, just give them commission? Let me ask you how many jobs you have accepted that give you no salary. Ever had any friends sell those multi-level products and quit because the money for the time spent was just not worth it? Selling radio is just like that. Your miles on your car and the other associated expenses come out of your commission Most commission only salespeople don't last a week. So, if there's a new person each week, how do you build relationships with business owners? Let's turn that around: If you had a new financial planner for your retirement every week, would you stick with that firm? And by the way, when they don't get paid except when they sell and collect the check, they are not going to feel guilty stealing something from the station to pawn in order to eat. When you're so close to living under a bridge, you'd be amazed at what you'll do to stay afloat. That brings up another interesting point: the person that applies for the commission only sales job is typically a person that cannot get hired elsewhere because of a criminal record, very fringe lifestyle or substance abuse issue. A good salesperson is already successful elsewhere and making plenty of money so they'd laugh at your offer of commission only.
Finally some real numbers: When I arrived at the station we were billing $6,000 and expenses were $15,000 a month. Selling more spots got us to $15,000 monthly a year later and a monthly expense of $22,500. I changed the format after a year. We were scraping the bottom and I even explored trying to join with a local want ad paper to run a Tradio format full-time where you got an ad in print and on our station for a fee each week. We looked in to a 976 number where listeners could record on an answering machine what they had for sale. I even explored the shopping format done in Maine and Jacksonville at the time where you sold product on the air at a discount and that business got ads for product to sell in lieu of cash. I figured there were enough people that were the garage sale/2nd hand/bargain seeking shoppers and we'd benefit from a known print publication promoting us to save on promoting the station. So, you might say we were willing to try anything to get the billing we needed. And yes, my boss had money. He had to to cover the losses.
