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Online Advertising Budgets Get Help From Simple Ratio

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Online sales

Website owners who develop online advertising budgets can use a simple ratio from newspapers and broadcasters that makes predicting revenue much easier.

Tradition media companies struggle with finding a rational way to set goals for their online advertising budgets. Online revenue is growing rapidly, and it’s also highly volatile.

The challenge is more acute when an Internet operation of a media company 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 newspaper sites 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 media is an online advertising budget that is a percentage of the total print or broadcast budget. This same approach is useful for any brick and mortal business that has an online presence.

Some newspapers and broadcasters report getting more than 30 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 of the total.

This metric has several useful benefits for any business:

  1. It establishes a growth goal.
  2. The metric uses the industry as a benchmark for measuring a site’s performance.
  3. It takes any guesswork or debating out of the decision.
  4. 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. It’s another way of setting a goal for ecommerce.

Anyone who tries to create a budget that goes beyond one year can increase that percentage — and they certainly should — each outgoing year. They certainly should because businesses with a robust online presence have a better chance at beating their competitors.

When Traditional Revenue Declines

Online sales report

Five data points in an online sales report point to total revenue. © 2022 Scott Bateman

A business with year-over-year declines in revenue from in-store sales can put the two budgets together. The primary goal becomes total sales from both online and offline.

This combined budget will give a useful picture of how the business will remain stable or even grow in future years. For example, the in-store sales may decline by 2% a year while the online sales grow 10%. If total sales from both sources equal or beat inflation, the future of the business looks more secure.

Besides, a successful business owner 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 flexible business owner accepts a decline in one product line but tries to manage that decline. Meanwhile, he or she manages a new successful source of revenue and tries to grow it as much as possible.

It is this type of adaptive thinking that allows some businesses to survive and even thrive for decades and sometimes longer.

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