Over the past few months several significant client CFO’s have referred to reducing or capping the ratio of their “non-working” marketing expenditures and increasing their “working media” spending in investor earnings calls. These client CFO sound bites play well with Wall Street because it appears to reflect prudent business practice and emphasis on efficiency. Unfortunately, the appearance is an illusion and the sound bite is a myth.
So … What’s wrong with the working vs. non-working premise?
Clients that refer to non-working expenses often do not define what they mean by working and non-working expenditures. Unfortunately, many industry practitioners assume that agency fees, production, research and other “non-paid” media investments are non-working. Furthermore, they sometimes assume that only paid media falls within the “working media” category.
The notion of effectively controlling marketing costs by capping agency and production spending and any other “non-working” expenditures to invest in working media dollars may, in fact, be penny wise and pound foolish, given the dynamics associated with today’s marketing environment.
The Myth of the Working/Non-Working Ratio
When knowledgeable marketing experts think about the dynamics associated with contemporary marketing activities, there are a host of considerations that clearly demonstrate why benchmarking a ratio of agency fees or production costs to the level of paid media is not advisable.
It is possible that the working/non-working ratio benchmarkers either do not understand the dynamics of contemporary marketing or they are inappropriately trying to establish an artificial framework that suits their interests.
Benchmarking of so called “working/non-working” allocation is not a meaningful metric in today’s marketing environment.
The mix of marketing related expenditures should be evaluated individually and in aggregate in order to derive an accurate assessment of the components that are working hardest and contributing demonstrably to optimal marketing ROI. Some clients may be surprised to find out that agency fees and production executions are their most productive and leverage-able investments.
The 4A’s finance committees recommend that clients and agencies actively discuss business growth drivers and marketing return on investment. 4A’s finance committees developed The Myth of the Working/Non-Working Ratio guidance paper to help facilitate and inform agency-client discussions related to the composition of effective and efficient marketing investment.
4A’s EVP, Agency Management Services
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