The 5th Step of Sales Manager Measurement
Updated: Apr 3
This article was published in the special July 2022 issue of Radio Ink Magazine.
Over the years, a parade of metrics has been devoted to improving and rewarding revenue results based on a sales manager's performance.
As we review the evolution of thinking, it begins with the "sell it all" approach and arrives at the current use of "Yield Per Minute." The goalposts shifted when OTA (Over the Air) inventory was repackaged into smaller increments, and competition put pressure on the opportunity of raising rates. We need a 5th step to move sales manager measurement forward and balance the metrics and the outcome.
1. Sell it All!
The initial stage of measuring sales management regarding revenue was to sell all the commercial slots. There may have been only one station, with one rate, and perishable inventory pushed managers to make sure everything was sold. Price negotiations prevailed as managers focused on selling supply weekly and hitting a dollar goal. A sales manager received praise for selling out, and some left early on Friday for the golf course, considering their mission accomplished. The definition of sales success would undoubtedly change with the advancement of new station ownership rules and the arrival of desktop computers.
Ownership Had its Limits: One force affecting sales manager measurement was station ownership rules. Consolidation shifted metrics as we went from "Duopoly" (owning just two stations) to the 7AM–7FM–7TV station rule of 1953 and the 12AM-12FM-12TV station rule of 1985. The Telecommunications Act of 1996 opened the floodgates of change, and within a year, there were over 1000 radio mergers. Under the previous 1994 rules, no party could own more than 40 radio stations in the U.S. By 2003, based on the 1996 deregulation push, Clear Channel owned more than 1,250 radio stations, or one out of every nine in the country.1
The Computer Age: The IBM 386, with its sizeable floppy drive disks and limited capability by today's standards, was a game-changer in the early '80s. As these new machines arrived in sales and traffic departments, you felt the first rush of change, pushing the industry to more complex pricing and performance measurement. Grid cards with blocks of time defined across the week would display sixty-second rates in predetermined increments of five or ten dollars.
Demand documented by traffic departments would push rates up from the low end (grid four) to the top (grid one). In the mid-'80s, sales managers added more variations with thirty-five rates sorted by day and daypart. The "sell it all" theory of revenue performance was obsolete, and the radio industry needed a new metric to bring all the disparate rates back to a standard baseline.
2.AUR (Average Unit Rate) vs. Sellouts Percentages
There are two ways to grow revenues; sell more or charge more. Selling more would engage more customers, drive demand, and lead to selling at higher prices. The new marriage of daypart pricing and sellout percentages became a puzzle in deriving a revenue goal. Fortunately, desktop computers became more powerful and prolific in every sales manager's office, along with new spreadsheet projections.
The evolvement of AUR (Average Unit Rate) helped consolidate various rates into one number managers could point to with sellers and owners. Salespeople were ranked by their achievement of AUR and praised in sales meetings. Sales managers had a target to monitor and track each month against budgets.
A subset of this consolidation process led to a strategy called "Prime Time Rate Generation." Managers had an additional planning tool to hit a monthly budget using the inventory count in prime (Monday to Friday, 6 am to 7 pm) and an AUR target. Inventory outside of prime was not counted in the calculations; the ads could be sold at any rate or be used as bonus inventory to leverage a sales order.
Sales managers could now build models of sellouts tied to rates and forecast revenue outcomes. Many General Managers found sales departments were more fluid in their negotiation tactics, and the benchmarks were not always hit. This dilemma prompted more sophisticated software tools to forecast a price on a yield curve, a focus on negotiation training, and an understanding that AUR was not a stable metric. Companies like Maxagrid offered more sophisticated solutions to pricing and the measurement of yield potential.
3. RevPad Eliminates the Guesswork and Adds Balance
In 1992, Shane Fox, in his book "Pricing and Rate Forecasting Using Broadcast Yield Management," published by the NAB, introduced RevPad (Revenue Per Available Ad) as a new concept to measure yield performance. The idea for RevPad migrated from the hotel industry using RevPar (revenue per available room) and airlines using RevPPM (revenue per passenger mile). As yield management strategies became more critical, there was a shift by many in radio management to using RevPAD for a baseline of yield and sales manager performance.
The RevPad formula took total revenues and divided them by all available inventory. A station did not concern itself with a percent sellout or an AUR; you could consider all available inventory, the capacity (a fixed number), and see the relationship to revenues (the variable). This formula built a baseline for comparing current performance to historical and seeing an upside or downside. When ads were still 60 seconds in length, this metric was beneficial.
However, in 2004 Clear Channel introduced "Less is More," the thirty-second unit strategy that added more complexity to inventory management. The plan involved using shorter lengths and running fewer minutes in breaks to boost ratings.2 Two years later, in 2006, Clear Channel's first "blink," five seconds in length, was sold to Fox.3 The RevPad formula of available ads started to lose meaning and was being pushed aside, with many SLUs (short-length units) sold.
4. Yield Per Minute (YPM) or AUR in Disguise
YPM (Yield Per Minute) is the latest benchmark of revenue performance for sales managers. The variety of 60, 30, 15, and 5-second units sold is now balanced by a common denominator of sold minutes. For example, sales managers and owners can convert the $75 fifteen second unit sold and declare it's the same as selling a minute for $300. Everyone can "feel" good based on the formula, yet attainment of revenue goals may not always be celebrated.
What is YPM missing?
· Unfortunately, this metric only considers what is sold, like "AUR" or "Prime Time Rate Generation," and ignores inventory spoilage.
· You will fail to reach revenue goals if the rate for any unit sold is too low based on poor yield strategies.
· The negotiation range remains broad and subject to individual decisions close to the sale.
· History repeats itself, and once again, we discuss YPM (substitute rate) targets vs. sellout percentage targets to reach a goal.
Where is the right balance? How can intelligent discount strategies contribute to better yield performance? Topline revenues remain important when evaluating sales performance, yet current metrics are missing essential contributions to growing total dollars. We need a metric that considers yields from improved pricing decisions and the use of all available inventory.
5. RevMAPS™ (Revenue from Minutes-Available-Per-Station)
By taking total station revenues and dividing them by the total minutes available (capacity) for the same period, we discover a more comprehensive metric called RevMAPS.™
Why Use Capacity vs. Sold Minutes?
Percentage sellouts vary widely and rely on very accurate forecasts to be meaningful. Due to programming changes like play-by-play for sports, syndicated content, or a new format clock, capacity can fluctuate. However, capacity as a benefit over sellout percentages is that capacity is a "known" number and more constant. We can look at historical capacity and the revenues produced to build future expectations, and capacity is more predictable for longer-term goal setting.
RevMAPS™ Metrics
In the example below, consider a hypothetical goal of an 8% increase in revenue for month B vs. month A; RevMAPS™ measures the sales managers' use of improved pricing decisions on inventory sold while including the benefit of reduced spoilage. There is a direct correlation between revenue increases at 8% and RevMAPS™ at 8%. On the other hand, YPM is a lower percentage and a negative result, even with better use of less demanded inventory. YPM as a metric does not show a manager's efforts to maximize yield on all inventory.
RevMAPS™ works with one station, a cluster, or the entire company by rolling up OTA revenues and related capacities. The calculations are straightforward, and the metric applies fairly in bonus considerations for managers. RevMAPS™ also creates a level playing field across different stations or markets where demand characteristics drive price and skew performance perceptions.
Summation:
There have been several methods to evaluate sales management performance that are now obsolete. Changes in inventory structure, consolidation, and technology have contributed to shifting metrics.
When looking at OTA, we need measurement stability to consider a manager's inventory utilization and intelligent pricing. Evaluation of managers should consider the entire sales and marketing effort, which drives demand and increases total revenues.
RevMAPS™ introduces a thoughtful approach using revenues and capacity in its formula to define optimal yield and an equitable backdrop for incentives and performance reviews. It's time they take the 5th Step.
"Change the Metric, and You Will Change the Outcome" Alec Drake
Article References:
1. https://www.sagepub.com/sites/default/files/upm-binaries/5332_Sadler_Chapter_5.pdf
2. https://www.bizjournals.com/sanantonio/stories/2005/08/08/daily1.html
3. https://www.allaccess.com/net-news/archive/story/13339/clear-channel-sells-blinks-to-fox
Alec Drake writes on revenue management and sales improvement strategies. He recently founded “The Radio Invigoration Project” (T.R.I.P.), a new LinkedIn group supporting local radio sales; email him at contact@alecdrake.com. Read his previous columns at Radioink.com/author/adrake.