Many nonprofit organizations misunderstand the increasing costs of advertising – and it’s costing them.
It’s that season when organizations are preparing their budgets for the upcoming year. For many of us in the communications space, tis the season of spreading tough-love in the hope that nonprofit organizations don’t hamstring themselves with a flawed “save one’s way to prosperity” approach to budgeting for marketing expenses – especially social media and advertising. Increasingly, advertising is not an optional expenditure – it is a basic cost of doing business for any organization that relies on the time, engagement, or concern of audiences (…which happens to be most organizations).
When it comes to budgeting for a necessary advertising investment, a tremendous challenge confronting many nonprofit organizations is a reliance on precedent behaviors to inform our future planning efforts. The advent of digital technologies amplified by an increasingly platform agnosticism market have rendered many of the traditional “rules” of advertising obsolete. The communications world – and, in turn, the advertising world – is in a period of significant revolution and reinvention. A dogmatic beholdenness to the past is likely to leave an organization forever behind.
Here are two important points that your organization should keep in mind when it comes to the basic cost of advertising:
1) The cost of advertising has increased dramatically in recent years and many organizations are not keeping pace with inflation
Though you may be spending more, you are probably getting less return on your advertising investment than you were a few short years ago. The few percentage points that organizations add to their advertising budgets each year is simply insufficient when contemplated in the context of the escalating costs of advertising.
For instance, in my experience, even forward-thinking organizations keep their annual ad budgets relatively stable (“Hey, this is how we’ve always done it!”) and will sometimes add 5-10% if there’s a special program or campaign taking place that they’re trying to promote. The thing is, while organizations think that they are spending more (because they are actually spending more), they are increasingly getting less.
Take a look at the chart below. The chart indicates examples of observed advertising costs during the last five years. For relativity purposes, the escalating cost factors have been standardized and charted as index values.
“Blended CPM” indicates the growth in costs “blended” across all media types (i.e. broadcast, radio, print, digital, outdoor, etc.) as observed by the actual media plans of twelve IMPACTS clients. CPM is an acronym representing the Cost per One Thousand impressions. Thus, the average observed costs to advertise have increased by 41% in the five-year duration ranging from years 2010-2014.
As additional examples of advertising costs, within the same five-year duration, the chart indicates that the costs of a 0:30 second advertisement during the Super Bowl and Grammy Awards broadcasts have respectively increased by 60% and 105%.
We are living in an increasingly personalized world that emphasizes speed and convenience. We can simply TiVo, Apple TV or On-Demand our way out of most ads on our favorite television shows because we watch these shows at our convenience. Because of this, programs that folks watch live (e.g. sports, news, award shows, etc.) command premiums when compared to the costs of similar programming a relatively few short years ago.
In the simplest terms: Yes, on average, your organization will need to have increased its advertising budget by at least 40% in order to match your advertising efforts of five years ago. If you’ve added less than 40% to your budget, then your organization may actually be achieving less advertising impact than you were in 2010.
In the end, it’s a lesson in business and economics: You cannot just throw a bit more money at something year over year and get mad when you don’t get correspondingly “more” in return. If you’re not increasing the budget at the rate of what things cost, then you’re actually getting less. This lesson seems particularly challenging for nonprofit boards to understand when they are confronted with a proposed increase in the advertising budget. “So, if we spend more money on advertising, how much more support will we get?” is a perfectly reasonable question posed by many a board member. However, the question from board members probably ought to be, “If we don’t sustain significant investments in our audience acquisition strategies, how many visitors will we lose…and what will be the costs of trying to re-acquire them in the future?”
2) The first thing that organizations often cut is marketing (despite the increasing importance of funding in this area)
Compounding matters is the fact that – despite an abundance of the well-publicized reasons why it is a terrible idea – many organizations trying to balance budgets still seem to cut the marketing budget first.
This may be particularly relevant for visitor-serving organizations (museums, theaters, symphonies, gardens, aquariums, zoos, etc.) as these types of organizations are having a rough time meeting attendance goals. The anxiety associated with this causes organizations to deny data and do a lot of dumb things (and maybe some more dumb things) that will hurt them even more in the long run, and cutting marketing budgets in the Information Age is another one of them.
It’s a tough pill to swallow for traditionalists and specialists within organizations, but marketing is increasingly important for the survival of your organization. For many of the most successful organizations, marketing is at the center of strategic conversations. It’s a big change for many entities! And, organizations aren’t solely deciding that this should be the case…the market is deciding for them. As I say in nearly every post: Organizations can sometimes determine importance, but the market determines relevance.
Mix one part “not keeping up with the cost of advertising” with one part “cutting your marketing budget” and watch your audience awareness dwindle to record lows. For those persons in the nonprofit sector who may continue to balk at the idea that they need to spend more to acquire, engage, and communicate with their audience than they did five years ago, I ask you: What makes advertising exempt from the most basic laws of inflation? Again, these cost increases are the most basic costs of doing business.
For marketers, it is a tough road ahead: The “This is how we’ve always done things” and “Last year plus five percent” approach to budgeting and media planning that permeates many organizations is an increasingly doomed strategy. In a way, this post isn’t exclusively about marketing or advertising. It’s about a new way to think about the constantly evolving world that we live in. The world waits for no one. We need to keep pace or risk being left behind.