Monday, March 22, 2010

What’s Your ROPE (Return on Production Expenditures)?

Everyone’s talking about ROI these days. How much did the advertiser make from sales versus how much did it cost to obtain those sales?

Which is all very well and good. But a part of ROI that most people seem to be forgetting about is ROPE – or Return on Production Expenditures.

The reason is simple. ROI focuses on where most of the money is spent. And most of a marketer’s money is spent on media. Generally, media takes 90% of a marketing budget while production of the creative gets the remaining 10%.

But according to a recent study by comScore’s ARS unit, creative is four times as important in determining sales outcome as the amount of media spend.

Four times.

Which seems to indicate that if advertisers want to improve their overall ROI, a good place to start is by improving their ROPE.

So how do advertisers actually measure their ROPE, when and if they become so inclined?

The first goal of any commercial is to be watched. After all, it’s rather hard to convince someone that one product is better than another if the commercial isn’t watched.

The length of time that a commercial is watched by viewers can be measured second by second on the digital platform.

The advertiser pays for either fifteen, thirty or sixty seconds to be produced. If the average cost of creating a thirty-second commercials is $366,000, then it costs the advertiser a little over $12,000/second to produce that spot.

If the data comes back saying that on average, only five seconds are watched, then the advertiser is getting a rather poor return on investment on $306,000 of his production dollars.
If all thirty seconds are watched, then the advertiser’s ROPE Is 100%. And if the advertiser’s ROPE is 100%, then chances are, their overall ROI is going to be higher as well.

Of course, just because a commercial is watched doesn’t mean that it’s going to be persuasive in the marketplace. How persuasive a commercial ends up being can best be determined by sales.

But a commercial’s ROPE can certainly start to serve as a precursor to persuasion. As well, ROPE offers advertiser a way to start to hold their creative agencies accountable for the actual creative.

To do this, advertisers just need to tie part of an agency’s compensation into ROPE. The higher the ROPE, the more the agency gets paid. The lower the ROPE, the less the agency gets paid.

This will do two things. It will allow those brilliantly creative agencies to finally be paid based on how good they actually are.

While at the same time, giving those mediocre agencies just enough ROPE to hang themselves.

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