How to Get Back to Growth

There is still time to make this the year that the radio business regains control over its growth. In the last couple of weeks, we have listened in on the earnings calls of most publicly traded radio companies. We heard cautiously optimistic leaders hoping for a resurgence in advertising spend that will put the spring back in the industry’s step.

However, we have identified a significant threat that needs to be confronted before radio can get back on a path to growth.

The radio business suffers from a severe attrition problem among its largest local clients. This condition, often undetected and therefore unaddressed, not only makes year-over-year growth all but impossible, but it also erodes the industry’s hard-fought digital gains.

The good news is that this runaway attrition can be controlled. To achieve that, the Executive Leadership Team (ELT) of every company must collaborate closely with their Sales Management Teams to assess the extent of the problem in each of their clusters and take concrete steps to mitigate it.

Where Does Growth Come From?

At the Creative Resources Group, we are in the business of helping media companies create year-over-year growth. That is why we set out to answer the simple question, Where does growth really come from?

We conducted a series of statistical studies to understand the factors that explain why some companies grow while others don’t. At a macro level, we examined large companies with multiple business regions, markets and offices. At a micro level, we crunched the revenue numbers of hundreds of business units. In both cases, we compared how different account segments impacted the business’ ability to grow over the prior year.

The answer revealed itself quickly and unequivocally.

If Key Account Portfolio Attrition Exceeds 12%, Growth Becomes Impossible

The single biggest predictor of year-over-year growth is the attrition experienced by the local Key Accounts in the aggregate. If the Key Accounts, as a group, experience attrition higher than 12%, it becomes mathematically impossible for the cluster to grow over the prior year.

To explain this phenomenon, let’s imagine a radio cluster that, in 2023, did $10 Million in local revenue from 400 active local clients. The top 25% of the clients – the largest 100 local accounts – will be considered Key Accounts for all of 2024. From experience, we know that those Key Accounts will have generated roughly 80% of the dollars, or $8 Million.

Identifying the Key Accounts is the easy part. To manage them for growth, they need to be organized in a way that allows Executive Leadership and Sales Management to monitor their total spending as a group. For this purpose, we developed the Key Account Portfolio.

As soon as the Key Accounts are identified at the beginning of each year, they are locked into a Key Account Portfolio (KAP) from which no accounts can be removed and to which no accounts can be added. In the case of our example cluster, their Key Account Portfolio would have a value of $8 Million on January 1. From that point on, the KAP is managed very much like a mutual fund. As each month closes, the company calculates the KAP’s attrition in the aggregate and for each individual client.

At 12% attrition, that $8 Million becomes about $7 Million. As attrition rises, it creates an ever-increasing hole the sales organization must dig itself out of. One cluster we consulted had KAP attrition of 42%! To get back on a path to growth, the sales team reduced the attrition, first to 14%, then to 4%.

Key Account Attrition Does Double Damage by Killing Digital Gains

Just as the majority of a company’s revenue comes from the local Key Accounts, so does the majority of its digital revenue. In a recent study of a major market cluster, we observed that the attrition of the digital dollars almost exactly mirrors the attrition of the total portfolio.

The net effect is that the KAP attrition does double damage by pulling back the digital gains that most companies are counting on to lead the way back to growth.

ELT and Sales Management Must Collaborate to Reduce KAP Attrition

Radio does not have to accept high attrition as a normal cost of doing business. To reduce the KAP attrition, ELT and Sales Management should agree on a rational annual KAP attrition goal. Once that goal is set, ELT’s role is to ask for an updated KAP attrition number every month. If the number is higher than the goal, ELT should ask Sales Management for a plan to reduce the gap. Sales Management’s role is to help the sales team grow as many Key Accounts as possible, while minimizing the damage caused by accounts that reduce their spending or disappear altogether.

Next Month

Even if the sales organization succeeds in reducing Key Account Portfolio attrition to zero, which is possible but rare, there will still be a gap to reach the company’s growth expectations. Fortunately, our research revealed a second insight that radio can use to create growth. We will explore that topic next month.

See you then!

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