After a decade of change in advertising with the emergence of many new forms of advertising competing for investment, a study has for the first time quantified the total profit generated by different forms of advertising to show what they actually deliver to the bottom line.
The study – Profit Ability: the business case for advertising – proves that all forms of advertising create profit to varying degrees in both the short and long term. On average, advertising creates a total profit return on investment (ROI) over three years of £3.24 (€3.62) per pound spent.
Within this, it found that TV advertising:
The study was commissioned by Thinkbox, the marketing body for commercial TV in the UK, from Ebiquity and Gain Theory, who independently evaluate advertising performance and effectiveness for hundreds of brands. In total, it analysed over 2,000 advertising campaigns across 11 categories to uncover the impact that different forms of advertising have on short-term profit (within 3-6 months of a campaign finishing), and then combined these learnings with results for profit generated over the longer term (up to three years on) to determine total profit return.
|Form of advertising||Per cent of total ad-generated profit (3 yrs)||Average ad-generated total profit ROI||Total ad-generated profit likelihood||Per cent of short-term profit (3-6 mths)||Average ad-generated short-term profit ROI||Short-term ad-generated profit likelihood|
|Out of Home||3%||£1.15||48%||3%||£0.57||19%|
TV creates the most £ for £ profit
Ebiquity and Gain Theory found that TV advertising is responsible for 71 per cent of total advertising-generated profit at an average profit ROI over three years of £4.20 for every pound spent, the highest ROI of any media.
TV is followed by Print (which accounts for 18 per cent of total advertising-generated profit), Online Video (4 per cent), Out of Home (3 per cent), Radio (3 per cent), and Online Display (1 per cent). Online Video advertising includes both Broadcaster VoD (VoD services provided by the UK’s TV broadcasters) and online video advertising on sites such as YouTube and Facebook.
TV was also found to be the most effective short-term form of advertising, responsible for 62 per cent of all advertising-generated profit in the short term at an ROI of £1.73 for every pound spent, also the highest of any media. This is followed by Print (22 per cent), Radio (5 per cent), Online Video (5 per cent), Out of Home (3 per cent) and Online Display (2 per cent).
TV is the safest advertising investment
By examining the proportion of campaigns by different forms of advertising that made a profit for the advertiser, Ebiquity and Gain Theory identified the relative safety of different advertising investments.
TV was found to be the medium most likely to create advertising-generated profit both in the short term and the long term.
In the short term, 70 per cent of TV advertising campaigns delivered a profitable return. This is followed by Radio (62 per cent), Print (61 per cent), Online Video (52 per cent), Online Display (37 per cent) and Out Of Home (19 per cent).
Looking at total profit success during the 3 years after ad campaigns finished, 86 per cent of TV advertising campaigns delivered a profitable return. TV is followed by Print (78 per cent), Radio (75 per cent), Online Video (67 per cent), Out of Home (48 per cent), and Online Display (40 per cent).
TV continues performing at high levels of investment
The study found that TV delivers so much profit to advertisers because its scale and popularity enables it to continue being effective at high volumes of investment. Advertisers can increase investment in TV to a higher level than other media and it will continue to generate a profitable return.
Strong case for growth in TV investment
The study concludes that advertisers may be missing out on maximising advertising-generated profit by under-investing in TV. Currently, TV accounts for 54 per cent of advertising spend among Ebiquity’s database, yet it is responsible for 71 per cent of total advertising-generated profit.
“The study is important because it shifts the emphasis away from the ROI number ‘arms-race’ to a more responsible approach that talks about the scalability of ROI by media channel, and the impact that this has on profit generation,” noted Andrew Challier, Chief Client Officer, Ebiquity. “This is arguably more business-relevant and almost certainly of more interest to CFOs.”
“This study demonstrates that advertising drives significant profitable growth and provides the business case for investment, added Nick Pugh, Director, Ebiquity. “It is crucial that businesses now see advertising as an investment rather than a cost.”
“In a world of big data and advanced analytics, the lure of the easily accessible stat or number can be overwhelming,” suggested Matthew Chappell, Partner, Gain Theory. “Too often the easy measures are skewed towards the short term. One of the key aims of this study is to provide something of a correction: to move thinking and measurement from short to long term, to focus on what drives fundamental business success, and to give marketers the tools to do so.”
“Businesses are under immense economic pressure and marketers have to justify everything they spend,” advised Matt Hill, Thinkbox’s Research and Planning Director. “It is crucial that we constantly refresh and update our understanding of what different forms of advertising contribute so that marketers are spending wisely. This study by two highly-respected, independent organisations with robust data at their disposal bridges the gap between the marketing and finance departments with compelling evidence that quantifies advertising’s ability to deliver shareholder value, and TV’s centrality to that.”
Thinkbox is dedicated to proving advertising effectiveness. As well as commissioning effectiveness studies from respected independent companies it has also consistently supported robust studies by other organisations, most recently as a co-funder with Google of the IPA’s Media in Focus report by Les Binet and Peter Field. The 2017 study – which analysed the IPA’s databank of effectiveness case studies – concluded that TV remains the most effective form of advertising and is getting more so.
TV facts and figures: