Profit Ability 2 – The new business case for advertising

A vast new study of advertising effectiveness has proven that advertising is a profitable driver of business growth and that all forms of advertising pay back, especially when their sustained effects are measured.

• New study proves that advertising is a profitable driver of business growth
• Profitability varies greatly by media – TV is the greatest driver of overall profit volume
• Study covered £1.8 billion of media investment in the UK across 10 media, 141 brands, and 14 categories
• Most up-to-date and comprehensive analysis of advertising’s financial impact
• Used collective data from Ebiquity, EssenceMediacom, Gain Theory, Mindshare, and Wavemaker UK analysed the profit generated by advertising at different stages as its effects build over time. It examined four speeds of payback:
  • Immediate payback – within one week
  • Short-term payback – up to 13 weeks – i.e. includes immediate payback
  • Sustained payback – week 14 through to 24 months
  • Full payback – total payback 0-24 months

Advertising has an average short-term profit ROI of £1.87 per pound invested which increases to £4.11 when sustained effects are included

On average, a pound invested in advertising returns just over £4 in profit. But that’s an average across a wide scope of different media investments. Within this, the study’s key findings include:

Advertising works: all categories analysed in the study generated a positive payback from advertising when sustained effects are accounted for.

Time matters: 58% of advertising’s total profit generation happens after the first 13 weeks.

TV accounts for 54.7% of advertising’s full payback but only accounts for 43.6% of total advertising investment. Within this, Linear TV accounts for 46.6% of full payback and BVOD accounts for 8.2%.

Generic PPC (unbranded online search) offers the highest immediate payback, however its effects rapidly diminish after the first week and it has a weak sustained payback.

Linear TV is the second strongest performer for immediate payback, followed by Paid Social, Audio and BVOD.

TV accounts for nearly two-thirds (63.0%) of profit payback beyond the first week of advertising.

Summary of key figures from the study

Profitability varies by media

The study found that TV advertising is responsible for 54.7% of the full advertising-generated profit, with an average full profit ROI of £5.61 for every pound spent. By comparison, Online Video (which is mostly YouTube) has an average full profit ROI of £3.86 for every pound spent and accounts for 3.4% of full advertising-generated profit.

TV has highest ‘saturation point’

The study analysed the saturation point for each channel, which is the last point where every pound invested in a channel generates at least £1 profit.

It found that TV has the highest saturation point. Advertisers can increase investment in TV to a higher level than other media and it will continue to generate a profitable return.

Based on immediate payback (i.e. payback within one week of investment), Linear TV advertising on average hits saturation at the highest spend level – £330,000 – nearly triple the equivalent scale of the next largest channel (Print) and over 8-times the scale of Online Video.
Immediate payback not exclusive to ‘performance’ media

Although Generic PPC search accounts for the largest proportion of immediate payback (30.5%), Linear TV is the second biggest driver, accounting for 20.5%. This is followed by Paid Social (15.1%), Audio (8.6%) and BVOD (7.3%).

Linear TV and BVOD advertising lasts

The study also examined the impact of advertising today on future weeks. Looking at the profit payback beyond the first week of advertising, the analysis highlights the important role played by TV.

The study found that TV accounts for nearly two-thirds (63.0%) of the total all media profit payback achieved beyond the first week of advertising. Within this, Linear TV delivers 54.6% and BVOD 8.4%.

Generic PPC search delivers 9.7% of the total media profit payback beyond the first week of advertising, Paid Social 7.7%, Audio 6.4%, Print 4.8% and Online Video (mostly YouTube) 3.3%.

Profitability varies by sector

For example, in the Automotive sector, advertising’s full Profit ROI is £4.65 per pound invested. That’s more than double its Profit ROI in the Financial Services sector, where it is £1.95. Likewise, when looking at short-term profitability, advertising’s Profit ROI for Retail (large) was £3.15 per pound invested – nearly triple that of Travel (£1.19). The variance in ROIs is explained by nuances in the different business environments for each sector – such as the value of products, operating margins and the relative strength of advertising on sales.

Despite the upheaval the world has been through, the fundamentals of advertising effectiveness still apply. It’s great to see TV performing so strongly at whatever speed you want to drive profit, but this is about the strength of advertising as a business investment that grows the bottom line and grows the economy. I hope business acts on these findings.

Matt Hill, Thinkbox’s Research and Planning Director

This is a fantastic piece of work. The project team has come together from multiple agencies and put almost £2bn of marketing investment under review, providing ROI benchmarks and insight across many sectors and media lines. I hope this study will be the go-to reference for post-Brexit effectiveness for many years to come.

Nic Pietersma, Ebiquity Group Director, Marketing Effectiveness

Industry wide studies like this are the life blood of how we move our understanding of effectiveness forwards. Profit Ability 2 brings our collective knowledge bang up to date and will allow advertisers to make better decisions regarding their media laydowns. It provides a refreshing view on how we use channels, challenging the outdated brand vs. performance view of the world.

About Author

• Jane Christian, MD of Analytics & Insight, EssenceMediacom