Are brands investing enough of their revenue in advertising? According to a recent Nielsen analysis, “media spend needs to be between 1% and 9% of revenue to stay competitive.” The average falls on the lower end of that scale, with the median brand reinvesting 3.8% of revenues into media. “But if an underdog wants to compete with the established players for share, it requires proportionately more resources to match their media spend in absolute terms,” Nielsen says in its “ROI Report.” Conversely, Nielsen says a larger brand should skew in the lower end of the range.
For its first ever ROI Report, Nielsen analyzed its database of 150,000 observations of marketing ROI and its database of client-supplied media plans. It concluded that “overspending isn’t as problematic as underspending” and that underspending levels vary by channel.
Nielsen calls underspending on media “a big challenge,” finding that 50% of planned media channel investments were too low to achieve maximum ROI. This leads to a “50-50-50 Gap” which states that while 50% of media plans are underinvested by a median of 50%, ROI can be improved 50% with the ideal budget.
“The median underinvestment level was 52%, a large gap that most brands or publishers won’t be able to close in a single planning cycle,” Nielsen says in the report. “But those that close the gap can improve ROI by a median of 50.3%.”
As for overspending, the ROI Report says media sellers may find their advertisers are overinvested in one channel and underinvested in another. “Media sellers should focus on finding the right balance because their partners may not be spending enough on the right channels to cut through the noise and drive impact in the first place.”
The ROI Report notes that spend varies by region with brands in North America investing slightly less “but they enjoy a much stronger payback than the rest of the world.”
As reported earlier by Inside Radio, the ROI Report features valuable guidelines for all selling media. Among them are addressing advertiser underspending in half of media plans and focusing on strong target reach to deliver better sales outcomes.
Download the full report HERE.