Study Reveals Advertising Generates a Short-Term ROI of £1.87 for Every Pound Spent

Exciting news for marketers who want to increase their revenue! A recent study revealed that all types of advertising can help businesses grow, delivering positive results in both the short and long run.

The study 'Profit Ability 2: the new business case for advertising' revealed that, on average, advertising generates a short-term profit ROI of £1.87 for every pound invested. This ROI increases to £4.11 when sustained effects are taken into account, lasting up to 24 months.

What's particularly fascinating is that 58% of advertising's total profit is generated after the initial 13 weeks. This highlights the importance of maintaining consistency and repetition in order to run a successful campaign.

Commissioned by Thinkbox but independently analyzed, this study gathered data from Ebiquity, EssenceMediacom, Gain Theory, Mindshare, and Wavemaker UK. It covers £1.8bn of media investment in the UK, spanning across 10 media channels, 141 brands, and 14 categories.

The media channels included in the study are TV (linear and BVOD), generic PPC, paid social, audio, print, online video, out-of-home (OOH), online display, and cinema.

This updated and expanded study builds upon Ebiquity and Gain Theory's original Profit Ability study from 2017. It provides the first post-Covid/Brexit perspective on advertising's business performance, especially as digital marketing gains more importance. Industry-wide studies, such as this one, are essential for advancing our understanding of effectiveness.

Jane Christian from EssenceMediacom and Nic Pietersma, who is the group director of marketing effectiveness at Ebiquity, expressed their hopes that the study will serve as a valuable reference for post-Brexit effectiveness in the years ahead.

The dataset we have only looks at campaigns from 2021, 2022, and 2023. This helps us understand how effective marketing has been after the Covid pandemic.

When we break down the data, we see that 21% of the spending was in 2021, 32% in 2022, and 47% in 2023.

Breakdown by media

The research looked at how much profit advertising brought in at various points in its lifespan. It focused on four different timeframes: immediate payback (within one week), short-term payback (up to 13 weeks), sustained payback (week 14 through to 24 months), and full payback (total payback 0-24 months).

The study revealed that profitability varies depending on the type of media used for advertising. TV advertising performed well in the study, accounting for 54.7% of the total advertising-generated profit. On average, every pound spent on TV advertising resulted in a full profit ROI of £5.61. Linear TV contributed to 46.6% of the full payback, while BVOD accounted for 8.2%.

Furthermore, TV advertising was found to contribute to nearly two-thirds (63.0%) of profit payback beyond the first week of advertising. It was noted, however, that TV advertising may be less effective during the first week, highlighting its primary role in long-term brand building.

The study found that TV reaches its highest saturation point at £330,000, where every pound invested generates at least £1 profit. This means advertisers can invest more in TV compared to other media and still see profitable returns.

A previous study conducted from 2014 to 2017 analyzed over 2,000 advertising campaigns across 11 categories. The study aimed to understand the impact of advertising on short-term profit (during and 3-6 months after the campaign) as well as long-term profit (up to three years later).

In the recent study, there have been changes in the media channels analyzed and the time horizons considered. While it may not be an exact comparison, the previous study revealed that within three years, TV was responsible for 71% of the total advertising profit and had an ROI of £4.20.

Summary of key figures from the study. Source: Thinkbox

Print advertising may only receive 3.3% of advertising investment, but it stands out with the highest full payback ROI of £6.36 and the best short-term ROI of £2.74. It maintains a consistent payback performance across various stages, contributing to 4.8% of immediate payback and full payback. In comparison, print had a budget allocation of 23% in the initial study.

Generic PPC, also known as unbranded online search, provides a quick return on investment, giving back 30.5% immediately. However, the effects start to diminish after the first week, resulting in a sustained payback of only 8.8%. In the end, it has a total payback of 14.6% from an initial advertising investment of 18.9%.

Paid social media advertising also offers a high immediate payback, with 15.1% of the investment returning within one week. This rate slows down to 8% between weeks 14 and 24 months.

Audio advertising, making up 6.2% of total advertising spending, boasts an impressive full payback ROI of £4.98 and an immediate payback of 8.6%. With a short-term ROI of £2.47, it is considered one of the most effective channels in terms of return on investment. Online video, primarily on platforms like YouTube, has an average full profit ROI of £3.86 for every pound spent and represents 3.4% of total advertising-generated profit.

Out-of-home (OOH) advertising receives 5% of advertising investment and contributes to 3.1% of full payback. Online display advertising, accounting for 5.5% of spending, contributes to 2.9% of full payback, while cinema advertising, with a mere 0.4% of investment, accounts for 0.3% of full payback.

Profitability can vary depending on the sector. For example, in the automotive industry, the full profit return on investment for advertising is £4.65 for every pound spent. This is more than double the profit ROI in the financial services sector, which is £1.95.

Jane Christian, the managing director of analytics & insight at EssenceMediacom, emphasized the importance of industry-wide studies like this. They help us better understand the effectiveness of advertising and drive our knowledge forward.

Profit Ability 2 is here to update our knowledge and help advertisers make smarter decisions about their media strategies. It offers a new perspective on channel usage, moving away from the traditional brand vs. performance mindset.

Editor's P/S:

The article presents compelling evidence that advertising, in all its forms, can drive significant revenue growth for businesses. The study reveals that advertising generates a positive short-term ROI of £1.87 for every pound invested, which increases to a remarkable £4.11 when considering sustained effects. This highlights the importance of maintaining consistency and repetition in advertising campaigns to maximize their effectiveness.

The study also examines the performance of different media channels, with TV emerging as the top performer, accounting for 54.7% of total advertising-generated profit. TV advertising was found to be particularly effective in long-term brand building, with nearly two-thirds of its profit payback occurring beyond the first week. The study also provides insights into the strengths of other media channels, such as print, generic PPC, and paid social media, offering advertisers a comprehensive understanding of the potential ROI from various advertising strategies.