Why working / non-working ratios no longer work for advertising

This post is by Darren Woolley, Founder of TrinityP3. With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

This is the ninth in a series of one minute videos that address one of the many complex challenges facing marketing, media and advertising today. The Golden Minute series is an attempt to prove Albert Einstein right when he said “The definition of genius is taking the complex and making it simple”. But he also said “Everything should be made as simple as possible, but not simpler”. So we will leave it for you to judge. Please let us know here if there is a topic you would like us to cover in a Golden Minute.

 

As an industry we, love our terms. Usually they are TLA (Three Letter Acronyms) like ATL, BTL and TTL. Or RFP, RFT and RFIsMarketing technology digital buzz words are making this even crazier.

But there is a concept which has recently made a prominent return to the industry and yet it is totally outdated and no longer relevant. That is Working and Non-Working Spend.

The reason for the sudden resurgence is a combination of management consultants who are pushing Zero Based Budgeting, not so much to drive marketing performance and return on investment, but more as a marketing investment framework to reduce the marketing investment and therefore budget.

The second source is the increased activity in investments in traditional consumer package goods brand companies by private equity and venture capital. Their use of the term is to inform the market that they have magically discovered the investment strategy to turn the flagging performance of these entities around by simply reducing non-working spend and improving the working to non-working ratio.

In fact, as I write this, it seems so self-evident that you wonder why the schmucks that owned the business before it was bought by these clever investors had not done this already.

Why wouldn’t you reduce non-working spend. After all, if it is non-working why are you spending anything on it anyway?

What is Working and Non-Working Spend?

That is until you understand what working and non-working spend actually represents. Working spend is traditionally considered to be a media-related expenditure. That is the cost of the media that places the message into the sight of the potential customer, and hopefully persuades them to take an action such as buy the product or service of the advertiser. Clear?

So what is non-working you ask? That is all the other costs associated with this process. It includes the agency fees, the production fees, and the costs of producing the content that runs in the media advertising.

The working to non-working ratio for a long time was considered 10%, being that for every dollar you spent on the media, the other costs associated with that spend should be no more than ten cents.

Then along came the internet and websites and e-commerce and social media and mobile and more. To make this easier lets think about all of these opportunities in the three areas of paid media (media you pay for and thus would be considered working) then there is owned media (this is all of the media assets you own, including websites and content that you have created or bought but this is considered non-working) and then there is earned media (being all of the consumer generated media which could be consumer generated content, social sharing and the like which is also considered non-working).

So you can see that like Above the Line and Below the Line, Working and Non-Working expenditure have been significantly disrupted in their meaning by the internet and digital marketing.

Working and Non-Working in a Digital World

Take SEO for instance (Another popular TLA that means Search Engine Optimisation).

With Google and the other search engines generating millions of visits to websites every minute there are marketing strategies to ensure your non-working owned media, being your website, is optimised to ensure you get an unfair share of those visits, because the search engines like Google will rank the link to your site higher for that search leading to a lead and potentially a sale. But because it is not paid media it is non-working.

But Google and other search engines allow you to bid for the search terms, this is called paid search. No TLA here. It means that if a potential customer searches for the term you have bid for, and if your bid is successful (high enough), then your link will be displayed at the top of the page, increasing the chance of the person searching for it to click on it and visit your non-working website.

Now because the search was paid it is therefore paid media and the spend is considered working. Get it?

So when a company says they are going to reduce the non-working spend, what do they actually mean? Well it is hard to tell. It could mean they are going to make really cheap and annoying ads to go in their very expensive media. It could mean they will do less SEO and spend more on paid search.

But the fact is no matter what they do, the terms working and non-working simply do not work anymore when it comes to considering, analysing or managing marketing, and advertising spend.

So the next time someone suggests they can lower your working to non-working ratio, we would recommend you ask them if they can improve your P3s – productivity, profit and market performance instead.

Golden Minute Script

I got a call from a client wanting to reduce their non-working spend.

What’s not working? I enquired.

The cost of producing the ads, the content.

So what is working then? I asked.

Media and media cost.

So media is working and the content on that media is non-working.

Well I said, you could reduce your non-working to zero?

They were very excited.

Until I explained that there would be nothing to run in the media.

30 seconds of nothing on television.

30 seconds of silence on radio.

No digital ads to serve.

And of course no non-working cost.

Would that work for you?

I’m not sure working and non-working really works anymore. Do you?

 

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About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 – Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren’s Bio Here Email: darren@trinityp3.com

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