Sustainable Profits
The challenges of a waste-recycling business.
We are about to take another shot at something that ended in failure five years ago. Yes, we are making another infomercial, but this time I think I know what I’m doing. Actually, that may be an exaggeration. This time, I at least have the experience of having gone through the process once before.
I have long had a fascination with infomercials, the cultural phenomenon that fills that great void of American television time between 1 and 5 a.m. If you are an insomniac and in the mood for TV between those hours, you may be lucky enough to catch classics like Tony Little hawking the Gazelle or Ronco selling GLH (“Great Looking Hair”), a product that allows you to “spray on the hair you always wish you had.” Still, while infomercials have earned a cheesy reputation, I believe that, done right, they can yield phenomenal results.
The first thing you need, of course, is a product, preferably one that is easily demonstrated and that screams value. Some of the most popular categories include food preparation (the Jack LaLanne Power Juicer), weight loss (the infamous Shake Weight for Men), skin care (Proactiv) and body-shaping underwear (you don’t have a Booty-Pop?). Bear in mind, according to people I’ve met in the industry, women between 30 and 60 represent the demographic that spends the most money on infomercials.
In retrospect, our first infomercial, which was broadcast in 2005, missed the mark. We were pitching plant food, which is bought by women, and we thought had an amazing offer: for one easy payment of $29.95, plus shipping and handling, you would get three types of plant food, a gardening book, and, wait, if you called now we’d throw in three pots, soil and herb seeds!
So why didn’t it work? Beyond the poor production values and the 30-minute format we chose, we didn’t appeal to what gets infomercial buyers off the couch and running to their phones, credit card in hand: an amazing unbeatable value on something unusual that will solve a problem. In other words, something you don’t run into every day at Walmart (not including the “as seen on TV” section, of course). In the end we ended up spending $40,000 between production and the media buy with profits coming in at slightly more than $7,500. In short: failure.
But if entrepreneurship has taught me anything, it’s that you should never let failures set you back. So in 2012 we will be releasing a new infomercial. This time, instead of selling plant food, we are going to pitch our new gold-and-silver recycling program. It’s basically your classic cash-for-gold model, which has already produced some epic infomercials, like the Cash 4 Gold Super Bowl Infomercial from 2009. But this time, instead of going cheesy, we are going to try the more upscale approach employed by Proactiv and Bose.
Our new infomercial will explain that TerraCycle will not only send you money for your “broken, unwanted and mismatched jewelry,” we’ll recycle it, and we’ll take an additional 2 percent of what we pay you and donate it to the school or charity of your choice. What a deal!
Most infomercials are short-form (two minutes) or long-form (30 minutes). You can hire a professional infomercial group to film the “creative” for you (and probably spend in the low six figures), or you can do what we did back in 2005: buy a video kit and do it yourself. It helps to know a little about video and editing, but the good news is that today a nice camera, a good microphone and Final Cut are all the tools you need. In 2005, we ended up spending around $10,000 to produce our first 30-minute infomercial. Our new one will run two minutes and cost closer to a few thousand dollars to make.
Here are some of the basics I learned making the first one: get that 1-800 number in there frequently (that’s the only way people will pay you), include an “upsell” (“Wait! We’ll throw in an extra set of knives if you order this face cream!”) and, most important, have a call to action (“Call now as supplies of our amazing wearable towel won’t last!”). We also learned that it is common practice to try to “hide” profit in those shipping and handling charges. How else can they offer to rush you a second double-chin toner free?
Once the infomercial is ready to run, the fun begins. A number of media-buying groups can get you a 30-minute national spot on a random channel at 3 a.m. for a few hundred dollars. Then you’ve got to pay $25,000 to $50,000 for the media buy, as well as a few more dollars for the nice folks who will answer your 1-800 calls (use multiple numbers so that you can track where the calls come from).
When evaluating the results, look at the ratio between the money spent on airtime and the profit returned. If you get anything above a 1:1 you are breaking even — and, in a sense, building your brand free. And if the ratio is above 2:1 you have hit a home run. (The first TerraCycle infomercial generated a ratio of 0.25:1, which is terrible.) What’s really interesting is that, apparently, if your infomercial performs a certain way on a five-figure airtime test, it is likely to duplicate that performance if you invest millions in air time. That’s why, if your test shows a 2:1 test performance, there are a number of funds that will bankroll a major airtime investment. This ability to repeat results is one of the amazing aspects of the industry — and the main reason I am so fascinated by its potential.
Infomercials are somewhat like the Internet in their potential. That is, if you find a good product, make a great creative spot, and get lucky, you can with relatively little investment generate millions over a short period of time. That’s the theory anyway. I’ll let you know how the next one goes.
Tom Szaky is the chief executive of TerraCycle, which is based in Trenton.