Content Production Strategy Blog Series: What’s the Average Working to Non-Working Budget Ratio? (Part 3 of 4)
This is part 3 in our Content Production Strategy Blog series. Read part 1 and part 2!
One of the most frequently asked questions we receive from marketers is about understanding the appropriate or acceptable allocation of working to non-working advertising spend. Why is benchmarking a ratio of agency fees and production costs to the level of paid media no longer advisable?
The formula is no longer as simple as in past years
We don’t advise on using working vs. non-working terminology because the premise implies that paid media is working (i.e adds value) and all other marketing expenditures are non-working (e.g. does not add value). We all know how hard agencies and production suppliers work for the brands and this has caused hurt feelings and further supports an old model where media buys were all paid. But, if you insist on the traditional taxonomy, here are some guidelines:
First, let’s be clear on what we’re calling working vs non-working media spend. Working media spend are those funds allocated towards the media buying and delivery of advertising content to the consumer. Non-working media spend is the money used to create and produce that content, which can include production, talent residuals, research, agency fees and “other” costs in the production eco-system including trafficking, distribution, payroll services, physical asset storage, and digital asset management. One could easily argue that all the money is working all the time, but that’s another discussion easily had over dinner & beer. For simplicity sake, it is antiquated terminology as the line between working and non-working has blurred which we will describe below.
Traditionally, the ratio of total working to non-working spend has been split at 80:20 but lately, we’re seeing splits of 70:30, 65:35 or even 55:45 from truly innovative advertisers. If we break down the non-working spend even further, we gain a better understanding of what’s being spent and where:
12% of non-working spend is on production, and 2% is on talent fees
8%-10% of non-working spend is allocated to agency fees
Global advertisers with lots of versions are on the higher end for production spend, typically closer to 24%, due to the additional costs for adaptations and usage rights.
Advertisers who produce less TV ads and more digital are in the 55:45 range.
Social Changes Everything: Because of the prevalence of social media, and the fact that social media is sometimes more impactful than paid placements, there is truly no exact ratio for digital production to media costs. If your brand utilizes more traditional channels (banners or low-production cost paid placements only) you could go with a modified traditional split. However, if social is widely used, then it’s a matter of looking at the types of social channels utilized, expected audience, number of campaigns, and content placement – then determine how much media may be used to amplify the social on existing channels. If social is part of the strategy, then the variables above should be considered and weighed against media dollars allocated. It’s not necessary to have a large traditional media backing when using social, but you may want to utilize that spend for PR or SEO, to amplify the social placements.
So don’t judge yourself so hard against the traditional norms; they aren’t working anymore. The trick is to produce quality content that with a good ROI… then the ratios won’t matter.