A digital marketer’s game is to estimate how their marketing efforts will translate into a monetary outcome. How much ROI will followers, fans, and clicks bring in? How do you know how much to spend on obtaining each new lead? Do you spend money on generating Facebook likes? The answer depends on who you talk to.
There is a theory which explains how a marketer, CMO, and CEO all value digital actions differently. For example, consider the way a website form completion is valued. A marketer finds it to be worth $10, a CMO assesses it at $20, and a CEO values it at $100.
Digital marketing actions have a fluctuating value
There’s no exact science to figuring out what digital marketing efforts are worth because it always depends on what others are willing to pay. On platforms like Facebook and Google, digital ads are purchased by bidding for keywords. The amount you spend for each click depends on how much other people are willing to pay.
The scale is arbitrary and fluctuates continuously based on current demand much like the stock market. Also, like the rising cost of housing, digital advertising is subject to the whims of inflation.
Digital marketing has become more expensive than ever
With advertising costs up 12% in the last three years, five times more than inflation, something more is going on. The competition to acquire new traffic is fierce; advertisers don’t have access to as many people as they think.It seems like this dilemma has caused the digital advertising world to experience a private inflation of its own.
How does inflation translate to digital marketing where there are no physical goods? While advertisements are digital, they’re designed to sell products and services at some point. Also, the dynamics of supply and demand exist within the advertising platforms.
According to financial experts, inflation is caused by demand and cost. “‘cost-push’ inflation happens when it becomes more costly to produce goods and services. For example, if the cost of oil rises, it becomes more expensive to produce and transport goods. These higher production costs lead to a decrease in supply and an increase in prices.”
In the digital marketing world, the increasing cost to acquire new leads can be compared to a rising cost to produce goods. Due to millions of people using ad blockers, there are less “fish in the sea,” creating a shortage of potential leads.This drives the demand for leads sky high, and advertisers are willing to pay more. In a bidding arena, that means advertisers with a small budget are out of the game.
High priced leads force businesses to increase the price of goods and services they’ll sell to those leads to make up for the cost. The digital world isn’t immune to the effects of inflation.
Inflation affects an advertiser’s budget, too
The amount of money an advertiser is willing to spend overall and per keyword is part of what drives the cost of acquiring new leads.
Say a digital advertiser sets their budget to use 30% of interest earned in a savings account. When inflation causes their business expenses to rise, they’ll be putting less money into that savings account. By continuing to spend 30% of the interest on digital marketing, they’re spending more money. Instead of increasing their advertising costs when there’s no justifiable return, many advertisers will scale back their spending.
When advertisers scale back their spending, competition decreases bit by bit. When smallbusinesses scale back their advertising, corporations with large budgetsgain the advantage.
Ad blockers disrupt the ability to value advertising
Digital advertising hasn’t merely been fluctuating; it’s been sinking. The 2017 Global Adblock Report found that as of December 2016, 615 million devices were using ad blockers. As more people install browser extensions that block ads, advertisers are watching their ROI diminish rapidly on standard networks. They’re fishing in a small pond when the advertising platform promised them a vast sea.
With any platform, users get used to seeing ads, and many ignore or block them. The novelty wears off quickly, and it inevitably leads to a lower ROI. Every advertising platform will experience this downfall at some point.
It’s time for a mindset shift
Accurately valuing each lead is always going to be an arbitrary guess at best. Unless your conversions are between 90-100%, each web form can’t possibly be worth $10 or $100. It’s impossible to place a value on leads that directly correlate with future sales.
Instead of getting stuck on the numbers and attempting to value each lead to set your budget, focus on getting results. You won’t convert 100% of your clicks, and you won’t convert 100% of your leads. If you’re going to advertise on digital platforms, focus on reaching a narrowtarget market and continually refine your strategy. Fine-tune it until you get better results.Stick to your budget, but don’t worry about how much each lead is worth. Know that your perception of value is equally arbitrary as any other.