Cutting Your Marketing Budget Without Losing Impact

With the size of Marketing’s spend, a few percentage points in either direction—toward efficiency or waste—can translate to millions of dollars saved or burned. Back in the bad old days of advertising, when expense account money flowed like wine, agencies would spend the GDP of Micronesia just to throw the Pets.com sock puppet against the wall and see if it stuck. Not any more. Today, with so much data and so much ability to track the impact of every piece of your marketing strategy, inefficiency is inexcusable. Time for a primer on ferreting out and reducing waste.

Types of Waste

Assuming that you have a good product/service and a decent marketing strategy, then it becomes all about execution, and that is where the costs stack up—for people, media, technology and third party services. In a perfect world, headcount and third-party costs would be minimized, allowing you to spend the bulk of your budget on content creation and media. That media spend would then be so perfectly targeted that every single ad seen would have a positive effect on your brand and sales. Then, to complete this picture of nirvana, the marketing campaign would energize your customers so much, that the campaign would go viral, driving loads of free love, brand awareness, purchase intent and sales.

Although worth striving for, this hardly ever happens. However, if you keep the creative juices flowing, challenging (and measuring) everything, and eliminating waste, you can get much closer every time.

The four main forms of waste and inefficiency in advertising are as follows:
1. Content production costs are too high
2. Fraudulent or low value ads that deliver zero value
3. Excessive ecosystem players and their margins
4. “Set and Forget” campaigns that are not optimized

Let’s dig into those one-by-one:

1. Content Production Costs

There are still far too many advertisers spending the majority of their campaign budget on developing creative (e.g., TV ads) in the hope of creating the next viral sensation—being talked about and shared
by consumers for free, thus saving on the media costs. This is almost always a mistake for the following reasons:
•    Globally, there are only a handful of viral sensations per year, so the chances of your campaign making the grade are close to zero.
•    Even if your content has the kind of quality to engage consumers and be shared, you need a large media budget to get meaningful distribution in the first place. You also need a media budget to amplify the sharing, as major ads platforms (such as Facebook) have algorithms that throttle free sharing, unless you put some media spend behind boosting your campaign.
•    Much of the best viral content of the past few years has not been all that expensive to produce. 

2. Fraudulent or Low Value Ads

In December 2014, Google announced that 56% of ads served on the Internet are not even visible on screen for at least one second. In other words, advertisers are paying for impressions that are, for all intents and purposes, never seen. As one writer put it, that’s like advertising to a TV playing in an empty room.

How can you evaluate the traffic you are paying for? 
•    Use Fraud Detection Software: there are now numerous media valuation platforms out there, such as Moat, Integral Ad Science and Double Verify, that help you filter fraudulent traffic. 
•    Vary Pricing Based on Quality: aiming for cheap media—the lowest cost per view— indiscriminately may drive your campaign towards the most dodgy inventory sources. It’s better to pay different prices based on your clear definition of quality.

Take the Facebook vs. YouTube debate, for example: If you run a video campaign on YouTube, the ad may be skippable, meaning that only those who want to see the ad will actually do so. The viewer will be focused on the screen for at least 15 seconds and the sound will be turned on. That is a pretty high quality view/engagement. On Facebook, a video view might be even better targeted, given Facebook’s superior data. However, you will pay for a video view even if the sound is never turned on and the view only lasts three seconds. This is clearly a much lower value view. However, Facebook views are also much cheaper, reflecting this lower quality. The solution is to assess the relative value of those views to you, and vary your pricing in line with this analysis.

3. Excessive Ecosystem Players and Margins

Advertising agencies in the US have been systematically padding their profits by using non-transparent practices such as taking rebates from media companies and not disclosing them to clients, according to the Association of National Advertisers (ANA). 

Typically, the companies paying the biggest rebates represent low impact, fraudulent or declining media. This often means analog media such as TV, print, radio and outdoor, but can also include digital ad networks. These rebates can be as high as 20% of media spend. The rebates are not directly linked to specific advertisers, but are paid to the agency based on aggregate spend across multiple advertisers.

Many agencies have their own trading desks and will allocate a major part of media budgets to be spent through these teams/platforms. What they typically neglect to mention is that those in-house operations typically make over 40% margin. Advertisers often try to find these excessive margins and kickbacks by getting their procurement departments involved in the vendor selection and pricing process.

How this can be resolved?

Ensure that an in-house team decides where you spend your media budgets. This will drive your spend to media that has the best ROI, and typically the lowest need for rebates. Also, only choose agency trading desks if they can deliver a better ROI than the alternatives (if you can’t measure this, then ban them altogether). 

Drive 100% transparency into your vendor relationships. 

Clearly, if you are able to measure ROI and shop around frequently, you will allocate more spend to inventory sources and vendors that deliver the best ROI. Your vendors will therefore have to do an outstanding job AND keep their own margins sensible, in order to win your budget.

4. “Set and Forget” Campaigns

The majority of marketing teams and their agencies do not optimize their campaigns once they have ‘gone live’. This is a MASSIVE missed opportunity and leads to a major percentage of budgets being wasted on every campaign. 

These kinds of optimizations can include things like:

•    Creative Optimization and A/B testing.
•    Find new data sources, from third parties or from your own CRM database, to constantly improve segmentation and targeting.
•    Pricing Variability: Most of the big digital inventory sources, such as Facebook, YouTube and Twitter, have auction pricing and allow precision targeting. That means prices fluctuate based on the value of a particular consumer, plus on supply and demand. Campaign managers need to be constantly looking at pricing, and moving budget to where the ROI is greatest.
•    Kill Bad Targeting: In every single campaign, there are things that just don’t work. By don’t work, I mean things like: targeting consumers who never watch the whole video, or those who never visit your website, or who never download your app. Sometimes you don’t know why they don’t engage, but that doesn’t mean you can’t stop serving ads to those people. It may be a person of a certain age/sex/marital, status/device type/ location, etc. If they’re not responding, either stop serving ads to them (save your money) or try something else that might get them to engage.

The solution here is simple. Either ensure that your marketing team or agency is well-equipped with experts who do this kind of optimization every day, or hire specialist companies that can—typically by using a combination of programmatic technology, math geeks and additional data sources. These specialists may cost you more, but the improvement in ROI will be well worth it.

Collectively: A Massive Opportunity

If your marketing activities are currently suffering from all four of these
areas of waste, what would it be worth to fix them all? Let’s imagine that right now, your combined marketing activities achieve an impact of 100. For the sake of this calculation, it doesn’t really matter what the unit is. It could be 100,000 customers acquired, $100 million of shareholder value created, or $100 million of incremental revenue as a result of your marketing activities.

Now let’s assume that you eliminate all of your waste. The impact that
the same marketing spend could have could very possibly be as follows:

•    Original Impact = 100
•    Fix #1: reduce spend on content creation (without reducing quality) and increase media spend by 30%
•    New Impact = 130
•    Fix #2: eliminate fraud and low value impressions, which accounted for 10% of your impressions, while improving media planning
•    New Impact = 143
•    Fix #3: reduce ecosystem margins by 10% with the money flowing straight to media spend
•    New Impact = 157
•    Fix #4: continuously optimize campaigns all the way through, increasing ROI by 40%
•    New Impact = 220
•    Total increase in marketing impact—the value created—is 120% better than before the changes

These numbers are not unusual. Lord Lever, the founder of Unilever, once declared ‘half of my marketing budget is wasted, but unfortunately I don’t know which half’. 

You now do know how to halve your marketing budget and have the same impact.