Online Advertising vs. Value generation
You are reading your Facebook newsfeed full of content shaped by Facebook algorithms, meaning you don’t decide what will be displayed. It may be your friend’s content or the pages you have “liked” or the sponsored content from advertisers. While you are reading, videos start playing since they are auto-play format. Like it or not, that’s not yours to decide, it is Facebook territory only. And now, you have this on top of it: a few seconds after the video starts, an in-stream advertising starts. Interruption over interruption. It is time to run a zero-based budgeting!
Let’s assume you are running advertising globally as many companies do. You plan your media budgets regarding key moments of the year, and then you provide a buffer for each country to work on their own operations. Now is the time to start a zero-based budgeting:
1. Ask for previous years performance of advertising including the following KPIs: traffic acquisition, new clients vs. returning clients, yearly revenue generated per new and returning clients, profit margin per new and returning clients
2. Run a RFM calculation over your clients and ask your supplier to also run a CLV calculation
3. You have your foundations for your decision-making: ROI of advertising, provided you have created a ±15% bracket
4. Cut 10% of your advertising budget and let’s talk about how you can turn those 10% into value instead of media pressure
10% of your worldwide or regional budget means a lot in our case. If you can rack up more than €3 millions you have plenty of opportunities to compensate the loss of media budget by more value creation. I agree, from here on you would endeavor in a field you don’t know very well and you would need some guidance to achieve your performance target: you have cut €3M out of the advertising team, you need to return at least €3M + your standard return within 3 years to succeed. The way to do it is to partner with a startup that would help you create a new revenue channel or create one from scratch if you have all the pieces required. Just ask your preferred supplier to go for a Make/ Buy/ Purchase analysis.
Don’t venture into the lean management analysis, you would only find high technicality issues since cutting costs are a heavy burden on all the organization when your target is instead to alleviate it: customer facing topics are always a good catch. Why not implement a new sales channel that would not create any cannibalization with existing ones? Or a new business unit that is made to last long enough to help you get into the intensive distribution channels? Or a way to acquire more customer knowledge to improve sales? Or even to provide a platform for your partners to sell to your clients like Apple does with iTunes? There is a lot more to do thanks to the digital assets than burning money to put a level of media pressure to sell your products. It is up to you.