The economics of Marketing Technology

Marketing technology needs a clear business case.

It also needs to look cool and empower its users, but any proposed system implementation should have a clear and simple Return on Investment case. It should be possible to articulate this business case in 1 minute without resort to techno-speak (if you can’t or your vendor can’t, then you should be considering whether this is worthwhile)

So, in that spirit, here’s an example business model for an ad builder solution:

Your client does 175 ad adapts per month and you charge $250 each. So you’re making $43,750 a month in revenue.

Let’s say your all up cost is $180 per ad (allowing for the fact that you don’t get 100% utilization), so your profit is $12,250/month, a margin of 28%.

The client calls a pitch and (horror) KwikyAds with offices in Costa Rica and South Africa pitch at $180/ad.

Now KwikyAds don’t have many Cannes Lions but this is not exactly the creative white heat of the end of the business and your client’s head has been turned by the potential savings. They really like you, your agency and the creative and strategic value-add you bring, but in the face of budget (and possible headcount) cuts, your client needs a win internally and cutting the agency’s costs always looks good.

So, try pitching this to them. They agree to use an automated ad builder solution and sign up to a new 3 year deal. You will lower their cost per ad to $175. They will save $13,135 per month (or $472,500 over the term of the contract) – a 30% saving. They will also get to keep their valued creative and strategic partners.

It should cost the agency c$10,000/month (like for like with the traditional manual method). So the Agency profit will go from $12,250 to $20,625, an increase of $8,375 or 68%. Agency margin on this work jumps from 28% to 67%. Oh and you lock in your client for 3 years.

Too good to be true? No. These are conservative figures. Real life instances show much greater savings – plug in your own numbers are see what you get.

How is it possible? Simply by recognizing what client work you do is high value-add and what is a commodity and resourcing and charging for each accordingly

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