Today's column is written by Tim Ogilvie, CEO of AdBuyer.com, a demand-side optimization platform.
“We sell. Or else.” -- David Ogilvy
The best thing a marketer can do for their business and their career is to transform their advertising expense to a Cost of Sales.
This isn’t just accounting jargon. There are only two ways to improve profit: increase revenues or reduce expenses. You will make more money, as a business and as an individual, if you’re on the right side of this equation. It’s why salespeople are usually the highest paid employees. Revenue creation gets rewarded. Expenses get outsourced to Bangalore.
Businesses need raw materials to create revenue. Every time a product is sold, the cost of the raw materials that is directly associated with that sale is called the Cost of Sales. Indirect expenses – like accounting and legal fees – are needed to run the business, but are only loosely connected to the top line. Advertising has historically been one of these expenses: fuzzily connected to results and often the first thing to get chopped in a recession. But internet marketing has changed the game, allowing virtually every advertiser to connect advertising dollars directly to revenue creation.
Product demand (aka purchase intent) is a critical raw material for creating sales. As a marketer, your job is to create demand or turn demand into sales. Internet advertising gives an unprecedented level of predictability into the demand that you can create from every dollar. By directly connecting advertising with the demand you can expect, you can transform a fuzzy advertising expense into the raw material of revenue creation: a Cost of Sales.
Advertising as a Cost of Sales is a way of life for most search marketers. The best ones know -- to the penny -- how much revenue an extra dollar in advertising will generate. The exchange model brings the same predictability to display. This has always been possible – some ad networks are masters of this game. But centralized liquidity and auction-based pricing have reduced the frictional costs to a point where every advertiser can play.
Typical “Brand guys”, who consider their job done once they’ve reached their target audience, don’t make measurement a requirement because clicks are not a good indication of building brand awareness. This mindset needs to shift. Otherwise, brand advertising budgets will continue to be viewed as expendable expense line items.
It’s harder to put numbers against the expected sales from brand advertising, but the tools exist. There are typically two-steps: quantifying the impact of advertising on purchase intent and then measuring how purchase intent translates into sales. Lots of companies can help measure the impact of advertising on purchase intent. These include traditional survey providers like Dynamic Logic as well as a few newer companies like Dimestore Media that can integrate this evaluation directly into your buy. Turning those stats into expected sales will be different for every business but is equally measurable. This process should be standard on every campaign – replacing the analysis of the click-through rate.
Making the cash register ring is the only thing that matters. Search is at the bottom of the funnel and easy to measure. That’s what built a $15 billion business inside of ten years! If we want similar growth for the display business, we need to draw the direct lines from advertising to the cash register. There’s an enormous payoff waiting for the people and companies that make it happen.