Recently, several client executives have referred to reducing or capping the ratio of their "non-working" marketing expenditures and increasing their "working media" spending in investor earnings calls. These client sound bites play well with Wall Street because they appear to reflect prudent business practice and an emphasis on efficiency. Unfortunately, the appearance is an illusion and the sound bite is a myth.
Marketers that refer to non-working expenses often only include paid media in the "working media" category. They inadvertently include earned media, owned media, web content, web videos, social media curation and targeted message executions that are not sourced from paid media publishers in the non-working category of expenses. They may also include agency fees, production, research and other "non-paid" media as non-working.
When knowledgeable marketers think about the dynamics associated with contemporary marketing activities, there are several considerations that clearly demonstrate why benchmarking a ratio of agency fees or production costs to the level of paid media is not advisable:
1. Media -- paid or unpaid -- is only as good (effective) as the relevance and persuasiveness of the commercial message. Paid media that delivers commercial messaging that is off-strategy, off-putting to the intended target audience, or placed in a suboptimal or inappropriate content environment should, in fact, be classified as ineffective, i.e. non-working.
2. Clients are shifting spending allocations away from mass-reach paid advertising platforms toward targeted media and web platforms. The cost of developing, producing, planning, buying, analyzing and stewarding an expanded array of targeted advertising messages results in improved overall return on marketing investment. However, the ratio of agency fees and production costs to paid media may well increase.
3. Social media, influencer marketing, web and mobile videos are rapidly growing components of marketing activity. More social media and video means more production costs and more fees to agencies and content providers. Often the paid media cost, if any, relative to the cost of developing social and video content is relatively low. The relationship of agency fees to paid media spend will index higher for social media and video than for traditional mass media. This does not inherently mean that social media and video marketing add less value simply due to this higher ratio of agency fee to paid media expenditure.
$46.8B Record U.S. agency revenue in 2015
4. Earned media, which is generally defined as media that is not paid for, has real value. There are costs associated with creating and producing appealing content that attracts earned media viewership. It is illogical to define payments to publishers and broadcasters that create viewership content as working, while defining payments to agencies and production companies that create appealing viewership content as non-working.
5. Client-owned media, such as company, brand or interest-based websites and apps, also have real value. Content drives consumer engagement of owned media. The fees paid to content developers, UX designers, agency strategists, app developers and other owned media implementation experts are working media.
6. Clients are investing significant resources into innovation to drive their businesses; data to advance more precise targeting of paid media; and analytics systems to calibrate the measurement of marketing return on investment. It is unlikely that any sophisticated marketer would view these expenditures as wasteful or unnecessary activities; however, these critical investments could be inaccurately described by some marketers as "non-working" activities.
Why this matters
The premise of working vs. non-working benchmarking implies that all paid media is working (i.e. adds value) and that all other marketing expenditures are non-working (i.e. do not add value).
Bryan Wiener, CEO of 360i, notes that "the upside to replacing the working vs. non-working ratio metric will lead to an increase in great work outside of the traditional box of paid media" and the inverse is also true: "The downside of not replacing the working vs non-working metric will lead to an increase in work that does not work well."
Benchmarking of so-called "working/non-working" allocation is not a meaningful metric in today's marketing environment. The marketing industry needs to elevate public debate about working/non-working benchmarking.
The mix of marketing-related expenditures should be evaluated individually and in aggregate in order to derive an accurate assessment of the components that are working hardest and contributing demonstrably to optimal marketing ROI.