Over the past 12 years I have analyzed and optimized somewhere in the neighborhood of 5 billion dollars of advertising spend. Here are a few of the things I’ve learned.
- Your accumulated brand awareness is more important than today’s advertising.
- It’s possible to temporarily overcome diminishing returns by expanding your reach to new audiences.
- Seasonality in sales is like a force of nature. You can’t fight it, but you can work with it and ride the wave to higher profits.
- Targeting your advertising budget to your best prospects is the enemy of limiting your advertising frequency. It may result in an unwelcome surprise without careful planning.
- If sales have unexpectedly gone up dramatically, it usually isn’t the creative, the media mix, or the new channel. Most of the time it’s because you’ve spent more than you usually do or expected to.
- Measurement integrity does more for optimizing your media than the shiny buzzword or technology of the day.
Goal Aligned Media is a Digital Marketing Agency that manages media for clients. If some of these topics interest you, or you have another problem you’d like solved, let’s have a chat about how we could contribute to your media performance.
Your accumulated brand awareness is more important than today’s advertising.
In addition to the sales generated by your current advertising, many sales come from your accumulated brand awareness. The proportions are hard to measure, but for established companies a good rule of thumb is that from 10%-40% of current sales are due to current advertising. It depends upon how much you’re spending and how well-known your company is, but established companies seldom fall outside of that range. That has important implications for some common marketing math.
A lot of marketers avoid the complications of media attribution and simply calculate the cost per acquisition by dividing the total advertising spend by total units sold. This shortcut can lead to problems. If this quarter’s advertising is only causing 33% of this quarter’s sales, then using total units sold is attributing 3 times as many sales to advertising than it should, and thus is creating the illusion of a cost per acquisition that’s 3 times too low. I have seen this shortcut lead to a lot of poor short-term budgeting decisions and missed marketing targets.
On the other hand, a good portion of the present brand awareness that you enjoy has come from your prior advertising. Particularly for lesser-known companies, which benefit the most from greater brand awareness, the payout of advertising can be a lot better than short-term calculations imply, due to the significant number of future sales coming from the increased brand awareness.
It is possible to temporarily overcome diminishing returns by expanding your reach to new audiences.
Diminishing returns on advertising spend are an unfortunate fact of life, and they occur a lot faster than many people realize. That’s probably because there are many different reasons why advertising returns go down as spending increases. Considering a few of them here, it becomes apparent how they can be avoided, at least temporarily.
Some sources of diminishing returns are:
- Expanding to 2nd and 3rd tier audiences to obtain reach
- Increasing frequency of advertising to the same audience
- Bidding up auction prices in paid search
- Creative burnout
The top two reasons for diminishing returns are lowering your audience profile standards to reach more prospects and overusing the same audience. Both of these issues can be alleviated by identifying more “good” prospects to advertise to. One way to achieve that is by using more media channels. Each separate media that you use reaches a small fraction of your target audience. As you expand the types of media in use, you’re effectively getting onto a whole new diminishing return curve by contacting a new portion of your target audience. It’s one of the ways you can increase your spending capacity without necessarily reducing your ROAS.
Seasonality in sales is like a force of nature. You can’t fight it, but you can work with it and ride the wave to higher profits.
Most businesses exhibit some seasonality and many live and die by it (e.g., Christmas). A lot of debate revolves around how many sales came from marketing and how many would have happened anyway due to high season sales. It’s often hard to demonstrate one way or the other because marketers, quite rightly, usually spend more on advertising during high season. Regardless of the reason, the data tends to move up and down together, which makes it hard to prove to naysayers how many sales were due to the season and how many were due to the marketing.
I’ve had many occasions to examine clients’ sales in different years and have seen how different marketing strategies have resulted in different seasonal peaks. Usually, you can see the difference. But two examples really stood out for me.
I once worked for a client that did business in Australia. Australians have a shared history with England, but a reversed season, so the Christmas stories they read often show snow, but they experience sun. This phenomenon set the stage for one company to successfully create a new holiday, Christmas in July. They were able to tap into an unmet demand and actually create a previously nonexistent annual demand peak. Such an achievement was revolutionary, and other companies tried to follow in their footsteps. I saw these other companies who heard the story spend huge sums of money trying to create their own off-season sales spikes, with no results whatsoever. Unfortunately, that’s the norm. Sure, if there’s a widespread unmet demand you might be able to get everyone to go along with the date you propose, but normally spending lavishly in low season will end in disaster.
Advertising isn’t a gas pedal to be turned on when sales are slow and turned off when they’re high. It’s the opposite. When there are more prospects in the market and the audience is receptive to your messages, your messages are more effective. Use seasonal patterns to your advantage by focusing your advertising when more people are interested in hearing from you.
Targeting your advertising budget to your best prospects is the enemy of limiting your advertising frequency.
Targeting your advertising to high response prospects can be very effective, but I’ve also seen it fail in digital marketing due to poor controls on contact frequency. Unlike the direct mail of old where it was very clear how many mail pieces went to each prospect, digital marketers today don’t have direct access to who is receiving their advertising. Digital advertising is sent to unverifiable prospects. Most platforms do have a setting to allow you to control the frequency with which your ads are seen by the same prospects, but the controls don’t work well. The tracking cookies used to identify prospects are commonly erased or rejected, making the same prospect appear to be multiple people and thereby receive your advertisement many more times than you were expecting. That identity leakage combined with concentrating your budget into a smaller targeted audience can sometimes blow your frequency goal out of the water and tank your ROAS with it.
It is an imperfect system, but there are still enough clues to be able to optimize your advertising with additional testing. You know that sending your ads to well targeted prospects will work better. You know that sending too many ads to the same prospects will work worse. And you know how much money you spent. Most platforms also give you some directional information about the size of audiences you’re reaching, your ad frequency, and how targeted your audience is. It’s all directional to be sure, but with well-planned testing, using different settings, and measuring the results, you should be able to get better returns than the market. Many people in the market will just let big tech run on autopilot, which is great for big tech profits, but not as great for theirs.
If sales have unexpectedly gone up dramatically, it usually isn’t the creative, the media mix, or the new channel. Most of the time it’s because you’ve spent more than you usually do or expected to.
Over the years I’ve investigated countless variations in sales and there’s one question I hear repeatedly that has the same answer 90% of the time. If your sales changed a lot due to marketing, it’s very likely to be because you spent more. Let’s walk through the math. If 30% of your current sales come from your current advertising and you make an efficiency improvement of 20% across all medias, that would make a 6% difference in your total sales. Most efficiency improvements are made to a specific media channel, so most efficiency improvements will have even less impact than this example. Therefore, when you see a large change in total sales, it’s unlikely that it was caused by your latest efficiency improvement.
Don’t get me wrong, I’ve seen and achieved some triple digit media improvements myself. If you do make a very respectable 20% efficiency improvement on a $50 million dollar media budget, that’d be $10 million dollars that could be taken straight to the bottom line. A consistent extra $10 million will make a big difference in stock valuations over time, but my main point about changes in sales is that it’s easy to spend more money and it’s hard to make fundamental efficiency gains. Therefore, when I see a big change in sales, the first place I look is at the recent spend.
I remember one time a vendor reported that every time they aired a new creative, sales jumped dramatically only to drop back down after a week of airing. They therefore concluded that they needed a lot more creatives to keep sales boosted. Fortunately, one of my team members asked how much they were spending during those weeks, and sure enough, it came out that they saved the money for when they’d be airing new creatives and backed it off the rest of the time.
Measurement integrity does more for optimizing your media than the shiny buzzword or technology of the day.
Today the buzzword is “artificial intelligence”. It’s new and exciting. It sounds like a revolutionary era close to science fiction.
What I can say for sure is that in the world of marketing analytics, I’ve seen the buzzwords change from statistics, to analytics, advanced analytics, data science, machine learning, big data, real time analytics, and now finally to AI. Some things changed in addition to the names and the hype, but always a lot less than the name implied. What has never changed is that throughout it all, the education, integrity, and diligence of the analyst using the tools remained the biggest contributing factor to success.
In short, a chainsaw does work better than a hand saw, but the adage of “measure twice, cut once” remains eternal. You can’t get your media dollars back once they’re spent.
Let’s earn you some more sales! Shoot me an email and let’s have a chat about how to improve your media’s performance.