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Online Advertising Budget Gets Help From Simple Ratio

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Online newspapers and broadcasters sometimes use a simple ratio that also is useful for other businesses that have a website revenue budget.

Tradition media companies struggle with finding a rational way to set goals for their online advertising budgets.

The challenge is more acute when an Internet operation has metro dailies, small dailies, weeklies and broadcast sites as part of the total network.

What revenue budgets make sense and how do they differ among the different types of properties?

Broadcast sites don’t have traditional classified listings to tap. Weekly site have less competition than dailies, especially major metro dailies.

Publishers already are under severe financial pressure and worry about the added burden of contributing to an aggressively increasing online revenue budget.

Online to Offline Revenue Ratio

A growing standard in the industry is setting a revenue budget that is a percentage of the total print or broadcast budget. Some newspapers and broadcasters report getting more than 20 percent of their total revenue from their websites. The ratio has climbed aggressively since the days when the ratio was only 1 to 2 percent.

This metric has several useful benefits for any business:

  1. The metric uses the industry as a benchmark for measuring a site’s performance.
  2. It takes any guesswork or debating out of the decision.
  3. It creates a standard for comparing the performance among properties within a company’s group or network.

Retailers of course worry more about sales than advertising revenue, but the concept works easily in their environment too.

A retailer could establish a budget for selling products and services on the website based simply on a percentage of total in-store sales.

Anyone who tries to create a budget looking beyond one year can increase that percentage — and they certainly should — each outgoing year.

When Traditional Revenue Declines

A business that is seeing year-over-year declines in revenue from in-store sales can put the two budgets together. It will give an accurate picture of how the business will remain stable or even growth in future years. For example, the in-store sales may decline by 2% a year while the online sales grow 10%.

Besides, a successful business should want to grow total revenue from whatever source rather than desperately try to hold onto revenue from one declining source.

Some peace of mind comes from that attitude. A good business owner accepts a decline in one product line but manages that decline as effectively as possible. Meanwhile, he or she manages a new successful source of revenue and manages it as well as possible.

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