How in the world can they afford to keep advertising like they do?

You’ve seen ’em. Those companies who offer to do battle with the IRS if you owe large income tax debt. The credit counseling companies. The medical discount programs. Those who will refinance your mortgage or your structured settlement?

How can they afford the sheer number of ads they’re running? Is business really that good?

Perhaps. On the other hand, maybe they have a different deal. No, not a better price, but an arrangement under which they don’t pay for advertising that doesn’t deliver directly attributable sales.

The arrangement known as “Per Inquiry,” or “PI.” You may also hear it described as “Cost Per Lead.” In the U.K. it’s called “Cost Per Action.” On the World Wide Web it’s known as “Pay Per Click.”

How Does PI Work?

The advertiser and the broadcaster agree to turn some of the broadcaster’s unsold ad time into PI ads for the advertiser. The advertiser does not pay for the size of the ad, nor for the number of ads run, but only a pre-calculated percentage of the actual sales produced by that ad. No more. No less.

The ads contain toll-free phone numbers unique to each broadcaster, which ring into a call center. Experienced telemarketers convert the calls to sales, and report the number of sales to the advertiser and the station.

This can be a great deal for the advertiser.

Why Doesn’t Everyone Use PI?

Television stations, radio stations, and newspapers are looking to sell their time or space for the highest price the market will bear. Most broadcasters won’t accept PI at all, which eliminates the option for most advertisers.

Those who do consider PI will grudgingly accept it as better than nothing, but only at the last possible minute, after they’ve offered fire sale prices to their regular advertisers, after they’ve offered remnant prices to the standby advertisers, if there’s no other way for the broadcaster to turn the unsold time into cash.

That last possible minute schedule will vary from week to week, which makes it hard to achieve enough repetition to help people to remember your product, and imagine themselves using it. Will even the least popular broadcast outlet run a PI ad with enough frequency to make the phone ring? A new direct response campaign will need two or three times the number of ad exposures required for a long term branding campaign.

Another frequency problem becomes obvious when one realizes that PI requires quick response. If they can’t see a payoff this week, broadcasters won’t continue to run the ads next week.

It All Comes Down to Reduction of Risk.

If one is willing to overlook the cost of lost opportunity, performance based advertising is largely zero risk for the advertiser. For the broadcaster though, there’s a serious probability that the ads will never produce any revenue.

Why? Because the advertisers most likely to ask for a PI deal are under-capitalized businesses with ads that aren’t working well. Instead of fixing the offer and increasing persuasive appeal of their ads, these advertisers look at PI as a great way to obtain cheaper exposure for their existing lame ads.

And that puts all of the risk on the broadcasters.

The offer is selected by the advertiser. The copy is written by the advertiser. The production is again handled by the advertiser. The broadcaster has to trust that the advertiser has done all of these things well. How much risk will broadcasters take? Frankly, it depends on the amount of unsold commercial time on their stations.

How Much Will PI Cost?

Let’s take a lesson from our brethren in direct marketing. Direct marketers know to the penny the amount they are willing to pay for each response to their advertising.

But calculating what the advertiser is willing to pay is only half the equation. How much will it take to motivate the broadcaster to accept performance based advertising? That’s the other half, and it’s critical.

We can assume a broadcaster will be more willing to accept a PI arrangement if the advertiser is willing to reduce some of the broadcasters’ risk.

First, pay those broadcasters the highest amount possible for each response. Experience has shown that a 50/50 split will usually enlist the cooperation of the broadcaster. On most items the math works out to a minimum necessary profit margin of six times cost. Will the product sell for six times the advertisers cost?

If the advertiser can purchase or manufacture say, an orthopedic pillow for $3 each, sell them in pairs for $40, and allow another $5 for fulfillment, there’s a gross profit of $29 per order. Split the profit and offer broadcasters $14.50 per sale.

Second, direct marketers also test market. They’re sure the numbers work for each mailing piece, each list they mail to, and each new broadcast outlet which carries their ads. The biggest television stations, those which are making a handsome profit in PI, (think “Superstation.”), require proof that the ad has produced significant sales in other markets.

So, if our hypothetical advertiser pays for ads which test the offer, test the presentation, and offer broadcasters a proven product and predictable success, the odds of future PI arrangements go up dramatically.

Then there’s the customer.

Consider all that the customer has to go through to place that order. She has to understand the offer while she’s being distracted by life. (Most of us don’t pay rapt attention to advertising, regardless of the medium).

Then, before she forgets it, Miss Customer needs to remember the number, or to write it down.

Finally, she needs that last emotional push to tear herself away from what she was doing and to correctly dial that number.

There is a theory that, even though PI generates few calls, those who do call convert at higher rates because of all of the pre-qualification steps they’ve already gone through. But, any skepticism about your offer on the customer’s part and she’ll never bother to go through all those steps.

Here’s where we split from direct marketing philosophy.

In PI, the hard sell of direct response doesn’t work as well as does the soft sell of lead generation. An advertiser will dramatically boost results by changing the immediate goal from getting a credit card number to harvesting the names, addresses, and phone numbers of new customers in order to contact them directly in the future.

Offer a free information kit, free video demonstration, free sample, or free trial. Give a free estimate or free quote. Stack on additional value until Miss Customer is compelled to pick up her phone and call now.

The fulfillment program is critical.

Without the cash register ringing, how will your broadcast partner get paid? What will you consider a response? How will you track it? The math is pretty straightforward. If experience shows you’ll convert one prospect out of five, and your average profit is $30 per sale, then each lead is worth $6.

You may need to retrain or replace your call center operators. In this new two step process, its critical that they understand the art of the upsell as well as the secondary sell.

Final Thoughts About Making PI Work For You.

Think big. Do you sell manufactured housing? What’s it worth to sell an extra home this month? $700? $1,000? Cut a deal with a radio or TV station to pay that much for each unit more than your monthly average. Point out that they can come count the units on your lot to check their progress. Could your broadcast partner make an extra $3,000 this month by running your PI ads in prime time? Watch their resistance to PI melt.

Alternatively, offer cash, but ask for a guarantee. Tell your broadcast partner that you’ll place a schedule of $500 per week, but that you’ll need to see 25 responses each week. It’s been my experience that stations will work harder to protect $500 already on the books than they will to earn an additional $500.

Per Inquiry is not cheap advertising, but it does have the advantage of being accountable and replicable. Done properly an advertiser can generate high quality leads or sales at a predictable cost. Perhaps your company could benefit from PI.