Study: Advertising is profitable business growth driver

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A comprehensive 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.

The study – Profit Ability 2: the new business case for advertising – was commissioned by Thinkbox from Ebiquity, EssenceMediacom, Gain Theory, Mindshare, and Wavemaker UK and brings together their vast econometric databases of client data. It is an update and expansion of Ebiquity and Gain Theory’s Profit Ability study from 2017, offering the first post-Covid/Brexit view of advertising’s business performance.

Profit Ability 2 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 [€2.17] 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 per cent of advertising’s total profit generation happens after the first 13 weeks.
  • TV accounts for 54.7 per cent of advertising’s full payback but only accounts for 43.6 per cent of total advertising investment. Within this, Linear TV accounts for 46.6 per cent of full payback and BVoD accounts for 8.2 per cent.
  • 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 per cent) of profit payback beyond the first week of advertising.

Profitability varies by media

The study found that TV advertising is responsible for 54.7 per cent 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 per cent 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 per cent), Linear TV is the second biggest driver, accounting for 20.5 per cent. This is followed by Paid Social (15.1 per cent), Audio (8.6 per cent) and BVoD (7.3 per cent).

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 per cent) of the total all media profit payback achieved beyond the first week of advertising.  Within this, Linear TV delivers 54.6 per cent and BVoD 8.4 per cent.

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

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,” advises Matt Hill, Thinkbox’s Research and Planning Director. “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.”

Summary of key figures from the study

    % of profit volume    
% of advertising investment % of full payback % of sustained payback % of short-term payback % of immediate payback Full payback ROI Short-term ROI
All media 100% 100% 100% 100% 100% £4.11 £1.87
               
TV (Linear + BVoD) 43.6% 54.7% 64.3% 41.5% 27.8% £5.61 £1.79
Linear TV only 35.0% 46.6% 55.7% 33.9% 20.5% £5.94 £1.82
Generic PPC 18.9% 14.6% 8.8% 22.5% 30.5% £3.52 £2.29
Paid Social 13.2% 9.4% 8.0% 11.4% 15.1% £3.20 £1.62
BVoD only 8.6% 8.2% 8.6% 7.6% 7.3% £4.25 £1.66
Audio 6.2% 6.9% 6.0% 8.2% 8.6% £4.98 £2.47
Print 3.3% 4.8% 4.7% 4.9% 4.8% £6.36 £2.74
Online video 3.9% 3.4% 3.2% 3.7% 3.6% £3.86 £1.76
OOH 5.0% 3.1% 3.0% 3.1% 3.3% £2.78 £1.19
Online display 5.5% 2.9% 1.8% 4.4% 5.9% £2.34 £1.50
Cinema 0.4% 0.3% 0.2% 0.3% 0.3% £2.56 £1.19

 

 

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