Cost of Advertising: 2 Cents a Week

I’ve been writing these weekly memos for 20 years.
This is number 1,051. This week, for the first time,
I’m going to tell you about my business.

Thirty-one years ago, David Ogilvy wrote, “In some developing countries radio still reaches more people than television. Yet even there nobody really knows what kind of commercials make the cash register ring. Isn’t it time somebody tried to find out?”
– David Ogilvy, Ogilvy on Advertising, 1983, p. 116

Sleep well, David. We found out. And by “we,” I mean the Wizard of Ads partners.

As Indy points out in the illustration above the title of today’s memo, opening with a pop culture reference from 50 years ago followed by a quote from a man that’s been dead for 15 years could easily lead you to believe I’m a dinosaur left over from that bygone era when cars still ran on gasoline.

Would I point out how old and potentially out-of-touch I am if I didn’t have complete confidence in what I’m about to say?

A lot of business people are listening to their kids right now and getting all lathered up in the belief that the Internet has made TV and radio ads obsolete. In fact, I just received an email from a client in Syracuse who is positively fretting about the future of radio. What makes his email especially funny is that we’ve been using radio exclusively for the last 3 years and it’s made him so wildly successful that he’s currently expanding into cities nationwide.

I believe in the web. In fact, I’m using it to deliver this message to you.

The Internet killed the yellow pages, the newspaper and encyclopedias and now it’s revolutionizing the distribution of books and music. Born in 2005, YouTube has become a magnificent lottery that doesn’t pay its winners in cash, but with worldwide recognition and a few weeks of fame.

I may be YouTube’s biggest fan. I am enthralled by it.

Have you ever bought any pay-per-click ads? Shortly after Google announced their AdWords program I spent more than $100,000 of my own money just to learn what does and doesn’t work. My only goal was to get a hands-on education. I didn’t want to risk my clients’ dollars until I knew exactly what I was doing.

In the end, I figured out how to drive qualified traffic to a target website for just a nickel a click. But that seemed expensive to me, so I abandoned it.

The average 30 or 60-second radio ad needs to be heard by the same person 3 times within 7 nights sleep. This currently costs my clients less than 2 cents per week. In some cities, that 3-frequency costs us only about a penny a week. We can do the same for you if you want.

When I talk about mass media, young advertising people often look at me with pity and scorn. I can almost feel them patting me on my head.

That’s why I got such a kick out of watching a YouTube video of Bob Hoffman speaking at an advertising conference in Europe:

“One of the problems with our advertising experts is that they have a free pass. They go around to conferences. They talk to the press. They write stupid blogs. And they make profound statements, and confident statements about our industry. And no one ever goes back and checks up on them… We begin our little journey in 2004, about 10 years ago… Seth Godin, the bestselling guru of marketing said, ‘We have reached the end of traditional advertising.’ He apparently forgot to tell Toyota and Coke and McDonald’s. Then Advertising Age, the top advertising trade publication in The States, said, ‘The post-advertising age is underway.’ Bob Garfield, a columnist at Advertising Age, said in 2009, ‘The present is apocalyptic. Any hope for a seamless transition, or any transition at all, from mass media and marketing to micro-media and marketing are absurd. The sky is falling. We are exquisitely, irretrievably, fucked.’ Bob is a nice guy but I really think he needs a hug. And according to the nonprofit think-tank, FutureLab, they just came out and said it, ‘Advertising is dead.'”

“Another of the fairy tales of the advertising industry was that ‘interactivity’ was going to make advertising more engaging and effective. Interactive advertising was going to ‘disrupt’ the old forms of advertising and make them obsolete… It turns out that people have no interest whatsoever in interacting with advertising. In fact, online banner ads have a click-through rate lower than one in a thousand. This is not interactivity. This is absence of interactivity. The idea that the same consumer who was frantically clicking her TV remote to escape from ads was going to joyfully click her remote to interact with them is going to go down as one of the all-time great advertising delusions.”

When David Ogilvy died in 1983, I was a 25-year old radio executive about to be handed a 100,000-watt FM signal and a staff of 32 people in a city of a million. The ads I wrote were so productive that business owners all over the city wanted to buy advertising from me. So in what might be the world’s best example of The Peter Principle personified, I was promoted to General Manager. In effect, my network traded their top salesman and best ad writer for the worst General Manager ever to sit behind a desk.

I was so miserable that I quit a year later to become a freelance consultant. But I didn’t poach clients from my radio station. In fact, I refused to work with anyone in the town or region where I lived.

There were 2 kinds of ad agencies. The big ones bought network ads for national clients. The little ones bought local ads for local clients in a single town or region. So I decided to invent a third category; I would work with local businesses nationwide, excluding only the region in which I lived.

It took barely 3 decades for me to spend a billion dollars of other people’s money on a never-ending series of experiments in advertising.

A billion is a thousand million. You already knew that. But I like to say it because I’ve never quite been able to wrap my brain around it. A billion dollars allowed me to try every experiment I could think of multiple times.

There’s nothing we haven’t done. It turns out you can learn a lot with a billion dollars.

I’m telling you all this to build my credibility. I need to do that so you won’t smugly dismiss what I’m about to say:

Mass media is still the best way to grow a local business.
This may change in the future, but right now the best return on investment for local businesses still comes from TV and radio and billboards.

Make no mistake: you absolutely need a website and it has to be a good one. Your customers are probably going to visit it before they contact you. But a website isn’t advertising. A website is a crazy high-tech answering machine that can answer every conceivable question your customer might ask. But you still have to get that customer to call.

This is probably where you should quit reading, because I’m about to start doing a lot of strutting and chest-thumping. It could get pretty ugly. In fact, give me a tall furry hat and a glittering baton I could be the drum major in a marching band.

One of the reasons I invented the Wizard of Ads business model is because I felt the traditional ad agency model pitted the agency and the client against each other. In the traditional model, the more you spend, the more they make, so they always want you to spend more.

In our business model, the more you grow, the more we make.

My first book, The Wizard of Ads, became business book of the year. My second book became the Wall Street Journal’s #1 business book in America and a New York Times bestseller. When my third book hit the bestseller list, I began recruiting the brightest young talent I could find and making them my partners. A few dozen of us are now scattered across the US, Canada and Australia.

Every Wizard of Ads is paid an up-front fee to investigate the market potential, identify your strengths and weaknesses, develop a style guide and a copy Bible, plan and negotiate a 1-year ad schedule, and then write the initial ads for a long-term campaign employing whatever media makes the most sense. We do mostly TV and radio although we also post a lot of billboards and write some email campaigns as well.

That up-front fee can range from $5,000 for a tiny company with big growth potential to as much as $350,000 for a huge company that’s trying to fend off a pack of hungry competitors. Following the development of the launch plan, we create new ads each month and renegotiate the media once a year for a modest monthly salary that is adjusted annually – up or down – by the same percentage that your top-line revenues have grown or declined.

We don’t make more money unless you make more money.

My original goal, obviously, was to find small companies ($1,000,000 a year in sales) that had the potential to grow 5x to 50x their current size. I began my business 30 years ago with 12 companies that paid me $500 a month. Each of them did less than a million dollars a year in total business. Some of those companies now do tens of millions a year and pay me more than $100,000 apiece.

Andrew Harrison is a brightly talented young man who wanted to work for me so badly that he agreed to answer my telephones just to get his foot in the door. He answered my phones faithfully without a word of encouragement from me for more than 12 months before I hooked him up with a small client so that he could make a few extra dollars. Andrew still answers my phones, but I’m growing him into a stallion of advertising.

Last week I told Andrew that he could pick up 2 more little clients at $5,000 up front plus $500 a month for the first year. When you consider those are the amounts I was charging new clients 30 years ago, you’ll see that I’m making Andrew learn the value of starting small and growing with the client. The telephone Andrew answers is (512) 295-5700.

If you’re too big for Andrew to handle, you should go ahead and call. He has an older brother that’s one of the senior writers on my in-house team. Andrew also knows all of my Wizard of Ads partners, many of whom work with companies already doing $10 million to $50 million a year.

The prices they charge you will be higher than $5,000 up front and $500 a month, but I’m sure that one of us can quickly get you rolling down a faster track, happily picking up momentum.

By the way, I promise not to talk about my business again for another 20 years.

Roy H. Williams