Consider margins to determine the profit generated by advertising.
Once we’ve identified the revenue generated by historical advertising campaigns, we help our clients consider the profitability of their advertising programs.
To illustrate the problem, here, let’s consider a real-world example from one of our clients.
This company, a Fortune 500 powerhouse, uses a variety of advertising channels to reach dozens of markets across the United States. Recently, we helped this client to analyze one of their campaigns in the Seattle market, which occurred over a nine-month window.
In this campaign, the company invested approximately $5mm in radio, television and print advertising for the Seattle market. We measured the campaign, and found that the advertising had generated an additional $15mm in revenue for the market, which represented a significant year-over-year increase in market performance.
What Does This Mean?
However, after factoring in the company’s 20% profit margin, it turns out that they invested $5mm to make back only $3mm in profit -- resulting in a net loss of $2mm on the investment. Although the campaign did a good job at generating additional revenue, the investment was too high to be profitable.
How We Help
We help our clients to understand both the revenue generated by advertising campaigns as well as the net profit created by these campaigns. We use this information to aid in advertising market selection and budgeting for future media plans.
In the example above, our client was spending too much in the Seattle market for the investment to be profitable. The company simply didn’t have enough market presence in Seattle to take advantage of the high advertising spend -- they had reached saturation in the market, and the extra dollars were wasted.
After we helped them to measure and recognize the problem, we partnered with their media planning agency to adjust the advertising plan for the following year. In the next year, the company was able to build on the base established in the previous year and turn a profit on the advertising program.