Traditionally, marketers placed great emphasis on the ratio of “working spend” versus “non-working spend” in their annual budgets. For those unfamiliar with the terminology, working spend refers to the dollars allocated to messaging placed in front of an audience (usually in the media). Non-working spend is the amount allocated to agency fees, content, production, research, data, marketing platforms—and just about everything else that doesn’t involve a potential audience-facing impression.
The marketing and advertising community has debated for years the ideal spending ratio of working to non-working budgets, settling somewhere in the 25- to 35-percent range for non-working allocations. When it came to budgets cuts, prioritization or department performance, marketers would boast about lowering the non-working expenses, ostensibly to maximize the investment in impressions that are “working” to sell product. Media companies especially benefitted from this traditional prioritization of audience impressions in the budget scenarios.
In today’s digital world, the working versus non-working budget debate is much less relevant.
Forrester’s U.S. Digital Marketing Forecast 2016 to 2021, released in January 2017, surprised no one when it estimated the U.S. digital marketing spend would experience a compound annual growth rate of 11 percent and reach $120 billion by 2021. We all know the digital megatrend is well underway and will continue to grow in the next decade as the millennials—who are more inclined to respond to digital marketing—fully demonstrate their buying power.
More noteworthy is what Forrester said about the shift in marketing budget allocations. Forrester predicted that “working budgets will give ground to non-working budgets over these next five years” and notes that “…many (marketers) are dialing back pure digital advertising investment, prioritizing instead investments in data, technology, and customer experience.” Forrester also states that “in 2017, marketing will tip away from volume-based advertising strategies toward quality experiences across the entire customer life cycle.” This marketing shift from quantity of impressions to quality of engagement, has been enabled by increasing sophistication, trial and error experience and the huge advances in marketing technology (martech) of the past several years.
For digital marketers, it’s becoming increasingly clear why the spend-ratio metric long used to guide marketing budget discipline no longer applies to them. They’re proving that budgets dedicated to marketing platforms, ABM, data, analytics and the people that can maximize their effectiveness are just as valuable—or more valuable—than achieving simply a large volume of impressions in the media. They’re proving that these initiatives are worthy of being called “investments” as opposed to “expenses.”
For media companies that rely on advertising for revenue and growth, this trend presents good and bad news. The good news is that digital marketing spend will be growing substantially—double-digit growth in fact —for the foreseeable future. The bad news is that marketers are investing a greater share of this growth in marketing infrastructure (we can no longer call it non-working; it would be a misnomer) as opposed to impressions. The silver lining is to be cognizant of this trend, and respond with services—of which there are many—that help and support marketers “beyond the impression.”