All forms of advertising, from £multimillion TV campaigns to targeted social media spots, are profitable drivers of business growth, according to a Thinkbox study looking at advertising effectiveness.
The research found that while all forms of advertising generate a positive pay back – with an average ROI of £4 profit per pound invested – profitability varies greatly by media. TV was found to be the greatest driver of overall profit volume.
‘Profit Ability 2: the new business case for advertising’ (a natural successor to the 2017 study of the same name) looked at £1.8 billion of media investment in the UK across 10 different types of media, 141 brands, and 14 categories.
It then analysed the profit generated by advertising at different stages as the effects build over time. It examined four speeds of payback – immediate (within one week), short-term (up to 13 weeks), sustained (week 14 – 24 months) and full (0 – 24 months).
Calculated using data from Ebiquity, EssenceMediacom, Gain Theory, Mindshare, and Wavemaker UK, the study offers what it describes as the “most up-to-date and comprehensive analysis of advertising’s financial impact” across the UK.
It found that advertising has an average short-term profit ROI of £1.87 per pound invested, increasing to £4.11 when including sustained effects.
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On average, each pound invested in advertising returns just over £4 in profit, taken from a wide scope of different media investments.
Breaking those findings down into more detail reveals that:
- Time matters: 58% of advertising’s total profit generation happens after the first 13 weeks.
- TV accounts for 54.7% of advertising’s full payback but only accounts for 43.6% of total advertising investment. Within this, Linear TV accounts for 46.6% of full payback and BVOD accounts for 8.2%
- 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 (63.0%) of profit payback beyond the first week of advertising
“Despite the upheaval the world has been through, the fundamentals of advertising effectiveness still apply,” said Thinkbox’s research and planning director Matt Hill.
“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.”
Profitability varies by media
The study found that TV advertising is responsible for 54.7% 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% of full advertising-generated profit.
TV has highest ‘saturation point’
The study also analysed the saturation point for each channel (the last point where every pound invested generates at least £1 profit), and 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%), Linear TV is the second biggest driver, accounting for 20.5%. This is followed by Paid Social (15.1%), Audio (8.6%) and BVOD (7.3).
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, the analysis highlights the important role played by TV.
The study found that TV accounts for nearly two-thirds (63.0%) of the total all media profit payback achieved beyond the first week. Within this, Linear TV delivers 54.6% and BVOD 8.4%.
Generic PPC search delivers 9.7% of the total media profit payback beyond the first week of advertising, Paid Social 7.7%, Audio 6.4%, Print 4.8% and Online Video (mostly YouTube) 3.3%.
EssenceMediacom, MD of analytics and insight, Jane Christian, said: “Industry-wide studies like this are the lifeblood of how we move our understanding of effectiveness forwards.
“Profit Ability 2 brings our collective knowledge bang up to date and will allow advertisers to make better decisions regarding their media laydowns. It provides a refreshing view on how we use channels, challenging the outdated brand vs. performance view of the world.”
Ebiquity group director for marketing effectiveness, Nic Pietersma, described the study as a “fantastic piece of work”.
“The project team has come together from multiple agencies and put almost £2bn of marketing investment under review, providing ROI benchmarks and insight across many sectors and media lines. I hope this study will be the go-to reference for post-Brexit effectiveness for many years to come.”
