Understand the biggest drivers of ad profitability

2 mins

Growth Hacking

juillet 17, 2024

What makes ads profitable?

There’s always been a certain mystery about this million-dollar question.

So, I decided to seek the answer.

Back in 2014, Paul Dyson, founder of the econometric consultancy Data2Decisions, conducted an analysis that revealed the drivers of ad profitability.

This analysis identified and ranked the ROI multiplier effects of various different advertising considerations.

However, the media landscape has changed dramatically since these past analyses were carried out in 2014.

Fortunately, Thinkbox commissioned Paul Dyson (now co-founder of Accelero) in 2023 to revisit his analysis, taking into consideration the massive shift towards online search advertising and digital advertising in general.

Searching through hundreds of studies, Accelero collated around 28,000 global campaigns, of which about 7,000 were UK campaigns. This very robust sample was used to identify the variables that most influence ROI.

What are the biggest, predictable drivers of ad profitability?

I was very surprised by the findings of Accelero’s 2023 study.

N°1: 👀 BRAND SIZE: UP TO 20x ROI MULTIPLIER

I know, I know. That is not what any of us wanted to hear.

Unfortunately, the study showed that brand size is massively important.

In fact, it’s the most powerful driver of ad profitability.

That’s a pretty solid argument to use in front of « brand awareness » skeptics.

Bigger brands get much better absolute returns on their advertising.

The bigger you are, the more effective your ads, thanks to existing awareness and affinity. Often, you’re just reminding people to buy.

Your existing customer base is also much more likely to buy new products or services – because customers already know and trust you.

Brand size is inextricably linked to brand health, or “power”.

Kantar research has consistently shown that stronger, meaningfully different brands are more likely to grow. In particular, Kantar showed that brands with strong differences are especially likely to see higher advertising returns.

N°2 – 📝 GREAT CREATIVES – UP TO 12x ROI MULTIPLIER

Second only to the size and strength of a brand is the quality of the advertising itself. There can be dramatic differences between the efficacy of the best and worst ads. Many award-winning ads are not easily linked to the brand, and others have a shock factor but fail to trigger the right emotional response. The best ads manage to combine being both creative AND effective.

The magic doesn’t come from button pressing and knob twisting in an ads dashboard.

It comes from great ads that are noticeable and memorable and cause an emotional response that drives action.

N°3 – 💵 BUDGET SETTING (ACROSS GEOGRAPHIES): UP TO 5x ROI MULTIPLIER

Optimizing budgets can be a highly effective means of delivering a higher ROI multiplier.

Some countries are simply more profitable than others, and media prices vary by geography, as do distribution channels, profit margins, and product consideration.

Brand size can also vary significantly. Allocating budgets across geographies in an optimum way can increase media profitability by up to a factor of 5.

4 – 💰 BUDGET SETTING (ACROSS PORTFOLIOS): UP TO 3x ROI MULTIPLIER

Different brands within a given portfolio will have different ROI potential.

Bigger brands will deliver a higher ROI simply because they have wider distribution (physical availability) or awareness (mental availability).

Therefore, prioritizing the bigger brands in a portfolio will lead to a higher ROI for your budget. This can provide a x3 multiplier on ROI.

N°5 – 📺 MEDIA MIX: UP TO 2.5x ROI MULTIPLIER

It’s well documented that campaigns using more than one media channel benefit from media multiplier effects – the evidence Accelero found is no different, suggesting that simply by using a multimedia strategy, there’s a potential ROI multiplier of 2.5.

Optimizing the media mix can pay major dividends, both in terms of how much brands invest in individual media channels (e.g., TV vs. OOH vs. online) and how much is invested in specific formats and placements (e.g., online display vs. online video, Facebook vs. YouTube, etc.).

However, the relative opportunity to improve profitability through mix optimization is smaller than ensuring you have invested money in brands with high potential returns and ads that work.

6-10 🙌 AND THE REST… (<2x ROI MULTIPLIER)

As you can see in the table below, marketers generally tend to overestimate the relative importance of media mix allocation, balancing brand vs. performance marketing and targeting, while they tend to underestimate the importance of brand size, creative quality, and budget setting across geographies and portfolios.

But this is not to supersede the role of media planning.

The majority of the elements on the chart all belong to the world of planning and strategy and collectively deliver the potential for huge ROI multipliers.

If you’re not optimizing budgets, brand/performance ratios, or buying the most cost-effective audience, then you’re missing out on low-hanging profit multipliers.