Inflation is a silent killer. It sneaks up on you, and while it’s happening you don’t even realize how much your spend is increasing. It’s not just rising prices that impact businesses, inflation has a long-term effect on business and the financial world. In the advertising industry, it directly impacts our budgets and the things we can do with those budgets. If you have ever been involved in the creation of an advertising campaign budget, you will know that it involves a lot of numbers, percentages and unit costs. As everything from raw materials to labor costs rise, every marketing department is under pressure to cut back without cutting essential elements like production quality or brand image and awareness. In this blog post, we'll look at 5 ways inflation is impacting advertising budgets and what advertisers need to do about it.
The Basics of Inflation
Inflation is when the cost of goods and services is rising. Inflation is different from a “rising standard of living.” Standard of living refers to the amount of goods and services an individual has access to. When inflation goes up, the amount of goods and services decreases, even if the standard of living increases. The rate of inflation is calculated by taking the current price of goods and services and dividing it by the price from a year ago. This is usually expressed as a percentage. If a one-year pair of pants costs $50 and this year the same pair costs $56, the inflation rate would be 11 percent.
Content is King (or Queen)
While inflation means that all costs go up, some increase more than others. Rather than look at how much a campaign costs, marketers need to look at what they get for the budget they have. In terms of advertising and marketing, some of the biggest budget busters are brand repositioning, large scale media investment and celebrity endorsement. But are those campaign tactics really worth it? On the other hand, you have things like content marketing and native advertising, which have low budgets but produce high returns. After all, it doesn’t matter if your ad budget is $100 or $100,000, if your message isn’t visible you aren’t going to get any ROI.
Agency Budgets are Tied to Commissions
The biggest budget changes come from the shift in media. Traditionally, media budgets were calculated based on cost per thousand (CPM). The cost per thousand is based on the total cost of an ad campaign divided by the number of people who will see it. It’s an easy way to determine a budget that takes into account the cost of production and the number of people who will see it. While CPM is useful, CPA (cost per acquisition) is becoming a more popular metric. It’s used by a lot of media companies as well as advertisers. CPA calculations look at the cost of a campaign and the number of leads it generates. The metric is used to make sure that ad spend doesn’t exceed the potential return on investment. CPA is a great metric for determining the value of a campaign. But it can also be a budget killer.
Rising Talent Costs
When calculating your media budget, you need to take into account the cost of the talent associated with your campaign. This has a lot to do with the fact that we live in an era of celebrity endorsements. When we see a recognizable face endorsing a product or service, we instantly associate that product or service with the celebrity. This is what advertisers call the “endorsement effect.” When calculating the costs of hiring celebrities, you need to take into account the fees associated with having them appear in your campaign. You also need to account for the cost of paying for their time as well as the fees associated with booking them.
Visibility is Key in Advertising
Another important consideration for advertisers is visibility. This is where the old cliché about “you get what you pay for” comes into play. Visibility is not the same thing as reach. It’s about brand recognition. When a consumer sees your product and recognizes your logo, your campaign has succeeded. In order to get the highest visibility, you need to spend the most money on a campaign. However, not all visibility is created equally. When it comes to getting the most visibility for your campaign, you want to make sure that it’s done in the right way. The last thing you want is to go overboard, especially if you’re working with a limited budget.
Bottom line
Inflation is a silent killer. It sneaks up on you, and while it’s happening you don’t even realize how much your spend is increasing. It’s not just rising prices that impact businesses, inflation has a long-term effect on business and the financial world. In the advertising industry, it directly impacts our budgets and the things we can do with those budgets. In this blog post, we've looked at 5 ways inflation is impacting advertising budgets and what advertisers need to do about it.
