MONEY MONEY MONEY

When John D. Rockefeller was asked
"How much money is enough?"
he replied, "A little more"

It all comes down to   M  O  N  E  Y.  It always has.  No matter how innovative, original, useful, or unusual your product, your service, or your idea may be - without adequate capital you’re not going anywhere on the fast-paced, ever-expanding, and increasingly competitive electronic direct marketing arena.

Over the years, FMS Direct has engineered numerous direct response campaigns that took companies literally from start-up to more than $10 million dollars in sales, and in each case, we had all the critical elements in place – we were marketing an outstanding product or service, had a strong marketing plan mapped out–AND the necessary capital to execute our plan with confidence!  Add a receptive, hungry marketplace, and that was our recipe for success.

CAPITAL FORMATION

Two words of caution - UNDER CAPITALIZATION.  Don’t undertake a DRTV campaign under capitalized or you’ll fail. You can take that warning to the bank.  It is impossible and frankly foolish to launch a carefully developed marketing strategy without enough capital to see it through. Any credible, experienced, and trustworthy DRTV professional you consult with in the development of your marketing plans will tell you this.  If they don’t, run for the hills.

Now, some words of encouragement – FMS CAN HELP YOU!  To request a complimentary product evaluation and projected cash flow analysis, you many contact FMS Direct at (818) 708-7814. 
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Our office will review with you your product or service, its market viability, price point, cost of goods sold, potential upsell products available, etc.  If we do not feel your product or service is well-positioned to reap profits from a direct response campaign, we will advise you accordingly.  We have helped many a potential client save considerable frustration and money through helping them honestly evaluate their product and the marketplace.

In some cases, for products and services that qualify, FMS Direct will significantly reduce its upfront marketing, advertising, and production fees in exchange for a participating in a percentage gross sales.  This is FMS Direct’s Risk Transference Marketing Program whereby FMS compensation is based upon sales.  For more information regarding this Risk Transference Marketing Program, contact FMS Direct at (818) 708-7814.

Pre-Production/Market Strategy

Let me begin by advising you that you must budget at least six months to develop a thorough and comprehensive Marketing Strategy.  Investment in the crucial development phase begins with securing the services of a professional DRTV production team.  This first step is key to your success.  Every move you make in the direct response marketing arena must be in close consultation with someone who has already been there. Your product or service may be a pioneering effort but if you plan to pioneer the DRTV campaign trail without a skilled professional guide, pray for a miracle because you’ll need several.

Remember the Marketing Wheel that we discussed in the chapter on developing your marketing plan?  The number of spokes in your wheel, that is the number of marketing strategies you are able to develop will determine the amount of money you will need to roll out your product to its greatest potential success.

In determining your over-all capital needs the formula is straightforward.  Test market as many of the spokes in your wheel as possible and have a minimum of twice the test amount in reserve for each spoke to do a gradual total market roll out. 

Production Cost

How much money do you need for production?  It all depends on your product.  According to Response TV Magazine, the average “low end” production budget is approximately was $150,000 and the average “high-end” production budget was $691,000.  The overall average was about $220,000.00.  Budgets are determined by your product and your category.  For example if you’ve developed and are planning to market a product that you know will revolutionize the skin care and cosmetic industry you’re going to be direct marketing on a very competitive playing field.  There’s tremendous profit potential in cosmetics.  We all know the success stories that have come out of this field but believe me that success did not come cheap.  Your spots and infomercial will be up against a number of other major players and it’s against this competition that you will be measured.  Plan on at least $250,000-$500,000 for production alone.

Now let’s say you’ve designed a new type of scissors or perhaps you’ve developed a totally new kitchen appliance that every homemaker is going to want.  In this case your product is ideally suited to what I call the demomercial approach.  The demomercial/infomercial is very cost effective for products who’s utility is easily demonstrated and readily recognizable. Like the original Ginzu Knives, the Super Mop and the Table-Mate (FMS Direct Infomercial) these are products that almost sell themselves.  If you have such a product it may be possible to create highly effective DRTV vehicles for around $150,000. 

Media Time

Remember this figure – Two-for-One.  This is the benchmark sales to media cost ratio that you should desire.  It is the ratio of your success!  You have a guaranteed success on your hands when every dollar invested in your media campaign generates two dollars in return.  I’ve been there many times when this happens and believe me it’s a great feeling.   It’s even better when it’s a 3 : 1 ratio or better.

Direct Response Television Advertising is an expensive proposition.  This is because it is a singularly effective way to reach your customer.  There is nothing else like it.  Plus DRTV campaigns results are instantaneous and continuously measurable. In DRTV you never stop testing.  You test your message, you test your market, you revise and go with your strengths increasing your efforts in the markets where your infomercial and DRTV spots are achieving success while cutting your loses where the return is less than acceptable.

Most initial minimum media buy tests range from $25,000 to $40,000.  As the test unfolds the campaign must be capable of quickly moving into expansion.  Contingency capital requirements to achieve the type of success potential dictated by a good initial media test range from $50,000 to $250,000. 

Very successful media programs that show indications of mega-hit potential must be able to ramp up rapidly (expanding and airing on a repeat basis in all television markets) and can easily require a media roll-out reserve of at least $1,000,000. A lot of money in anyone’s book, but worth every dollar invested.

Collateral Expenses

To achieve maximum dollar potential the successful electronic media campaign must be married to creative collateral and cross promotional efforts.  These include direct mail, direct video; inquire brochures, credit card inserts, radio advertising, public relations activities, etc.  The initial minimum creative investment in the collateral and cross promotional campaign materials can range from $25,000-$50,000 or more.  In addition funds ranging from $20,000 on up need to be available to test the direct collateral campaign.

Here are the actual budget totals that were allocated to launch a recent product.  Use these categories to determine the minimum amount of capital it will require to launch your product.

             $$$
            195,000           Pre-production and Production 
             25,000            Media Test
             50,000            Contingency
             25,000            Creative cost for collateral pieces
             10,000            Media Test (collateral)
              5,000             Telemarketing start up
            10,000             Legal and accounting
            320,000           Total cost

The Celebrity Driver

There is no question that celebrities sell.  QVC and The Home Shopping Channel do phenomenal business when a major personality from television or motion pictures acts as the spokesperson.  But that doesn’t necessarily mean that your product requires celebrity involvement to succeed.  In fact some approaches work better and appear more credible to the potential consumer without star endorsement.

Take for example the tremendously successful infomercial campaigns launched under the “Amazing Discoveries” umbrella, created by my good friend Pam Daily.  The show format is so interesting and innovative that the products and the entertaining host (Mike Levy) become the stars.  Susan Powter, a virtual unknown before doing her “Stop The Insanity” weight loss program reached celebrity status within 12 months of her first Infomercial. 

Star power works when the celebrity spokesperson or endorsement is perceived as genuine and is directly connected in some way to the product they are speaking about.  Jane Fonda’s Workout Tapes, Suzanne Somers and The Thigh Master, Victoria Principal’s skin care regime, Tony Robbins and the long line of sports and entertainment personalities involved in his powerful self realization programs are a few good examples of successfully connected celebrity sales campaigns.  In every case the celebrity is seen as passionately involved in the product.  They’re speaking to us not because they are stars but because they really believe in the product.

If your product meets the criteria of being naturally associated with a celebrity personality then serious consideration of celebrity involvement is merited.  The only other reason to consider a celebrity is that “Stars” have proven to stop the channel surfers.  However, beware that just because a viewer tunes in to your long form commercial, it doesn’t mean they will buy.  The celebrity needs to add more impact to the program than a “channel stopper.”  Again, a celebrity needs to be passionately connected to the product in order to maximize their effectiveness.

What’s does its cost for a name?  First of all they all demand and most receive a royalty or equity participation of some kind.  This is in addition to a performer’s fee that can range from $10,000 for a local talent all the way up to $250,000 and higher for a major star.

Often the amount of up front cash needed to secure a top talent can be reduced through a creative back end gross participation agreement or stockholders equity agreement.  If a celebrity is ideal for your product for the long-term success of a comprehensive advertising and marketing program, by all means consider giving the Star talent a percentage of the company.  In this case the celebrity becomes a partner with a real stake in the overall success of your project.

Money Is Not The Root Of All Evil.  The Lack Of Money Is.

Like any other business it takes money to make money in the DRTV business.  Securing adequate capital to move your product onto the information super highway is the single biggest challenge you will face.  Sourcing resources usually breaks down into these primary areas:

Private Individuals.  It’s a great advantage to have a rich uncle.  If you think I’m kidding, think again.  Many of the most successful products ever launched have been funded by the founder’s relatives, close friends or associates.  In fact private investors account for the majority of the funds used to launch new products. Private Placement Memorandums for the company can be developed by the help of professionals that can also raise capital from qualified and suitable investors.  If the product or the company has a good track record, money will be interested in it. 

Venture Capitalist and Investment Bankers. These professional business gamblers fund a wide array of products and services.  However they usually only consider products that show very large and very fast profit potential.  They are typically looking for products that show a strong likelihood of going public in very short time spans.  They also like to invest in companies that have a solid track record.  Very often the venture capitalist or investment banker becomes an equal or controlling partner in return for their funding.  Nothing ventured however means nothing gained.

Strategic Alliances.  This is a unique partnership between you and key players such as production and marketing companies.  It’s a mutually beneficial relationship where the cost of the campaign is greatly reduced in return for a profit sharing or royalty position. 

Forming a strategic alliance with a production partner is a uniquely valuable way to off-set capital investment requirements.  For example a strategic alliance partnership with a production company defers the direct expense of producing your DRTV spots or infomercial in return for a share of the profits.  This risk transference on a shared return basis might include the offering of stock ownership in your company, or a royalty/commission return to cover the direct costs deferments plus lucrative profit incentives.

Limited Partnerships and Limited Liability Corporations.

These pools of investment capital are sometimes formed by companies who bring in capital funding from smaller investors.  The partnership terms usually provide for a substantial royalty or ownership interest before the promoter receives his share.  Raising limited partnership capital is a legally complex approach due to securities regulations but can be rewarding if the product offers high returns and only moderate risk.  Small investors who lose money can be difficult to deal with and the limited partnership itself has to be managed as a separate company by the general partner who is liable for the partnership's obligations.

Initial Public Offerings and Public Companies.  Occasionally significant money can be raised through the development of IPO’s, or in some cases secondary issues from existing public companies.  Not long ago FMS Direct was involved in one such offering that raised the $500,000 needed to fund the direct marketing campaign.  This offering launched a program that led to $14,000,000 in sales the first year alone!.  The stock value went from its original value of 13 cents per share to $3.50 per share in just six months.  Obviously, public entities offer unique ways to raise additional capital and should be considered under the right circumstances.  It might behoove you to search out existing public companies that offer similar product or services. 

“Call Now 1-800 -  How to Profit from Direct Response Television Advertising”  Copyright 2006  Rodney H. Buchser

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