Spend Matters welcomes a guest post from Kamran Siddiqui and Justin Glazer; Alvarez & Marsal Business Consulting, LLC.
On any media and advertising sourcing effort, calculating cost savings on media buying (procurement of media real estate at optimal placement and price) can be a daunting task.
Media costs are always in flux; thus, generating an accurate baseline is sometimes next to impossible. The reason for the fluctuation is because traditional media (TV, print, radio, etc.) costs are measured in CPM (Cost Per Thousand), which can vary greatly by market, network, program, daypart, investment, and on-air times. In advertising, CPM refers to the cost to display an ad on a website, or with a network (in a media buy) 1,000 times.
To calculate the CPM of a single advertisement, divide the cost of an ad by the total audience and then divide that number by 1,000. For example, if an ad costs $2,000 and the total audience is 120,000 people, the CPM rate is $16.67 ($2,000/120,000)/1,000. It's worth noting that no matter how competitive a CPM rate looks for the campaign budget, there's no value in it if the ad isn't reaching the right audience.
Due to the complexity of CPM, procurement organizations will often take an arguably easier and more direct approach to driving cost savings by negotiating lower commissions on media commitments and/or reducing agency fees. These fees are driven by hours and rates associated with the day-to-day client services performed by the agency such as the overall media management, research, planning and implementation. From our experience, the greatest savings for any media and advertising sourcing effort will come from a reduction in CPM rates. In fact, A&M has seen as high as an overall 10-15% savings versus a meager 2-3% achieved from a reduction in agency fees and/or commissions.
Based on our experience, an organization can attain the highest value for its media dollars by consolidating its media portfolio with a large media-buying agency. A&M's point of view is that many clients make a mistake in attempting to "'kill two birds with one stone" by entrusting reputable creative with small media-buying operations to do their buying.
As part of A&M's media and advertising sourcing process, we've invited both incumbent firms known for their creative competency as well as strictly media-buying-focused agencies to demonstrate their media buying capabilities. Through conducting on-site demos and presentations, the level of disparity becomes apparent in terms of sophistication of operations, technology, tools and experience. Our experience further validates the notion that a firm known for its creative prowess will have both limited access to quality inventory at reduced pricing and weaker data analysis capabilities. Furthermore, it will neither possess the close ties to national networks nor have the market clout which is absolutely critical to obtaining competitive CPM rates. Creative agencies are just that ... creative.
On a recent client engagement, A&M was able to negotiate a savings guarantee from a national media-buying agency that was awarded the business. The agency guaranteed 14% savings versus prior year media purchases for television buys. This guarantee was contingent on maintaining our client's estimated spend/budget for TV ads for the coming year. To help mitigate risk, the media buyer agreed to refund a large percentage of all earned commission for the defined time period. To ensure savings were validated for our client, the selected media buyer agreed to a third party audit; this brought a sense of comfort to the CFO and CPO that the savings generated would be 'real'.
The fundamental goal of media buying is to reach a defined target audience in the most efficient and economical way possible or, in other words, drive value. An organization can achieve the highest yield on its advertising spending through leveraging volume with a specialized national media-buying agency that is willing to share in the risk. By driving more CPM value, organizations are then able to reduce advertising expenditure without impacting marketing campaign results. It's a win-win strategy for both procurement and marketing.
- Kamran Siddiqui and Justin Glazer; Alvarez & Marsal Business Consulting, LLC