Capturing 'Profit-Tailwinds' and Revenue Growth
Many leading digital publishers are meeting the challenge of growing revenues with varying degrees of success. However, one challenge that remains a constant is the ability to grow profitability at the same rate or faster than revenue.
The predominant focus of many leading organizations remains yield (or eCPM). Adroit sales and operations teams work hard to maximize opportunities for secondary sales and deployment of automated selling technologies and platforms.
However profitability, especially in scaled organizations, has other key components. And these components, left unattended, can result in significant inefficiencies and unrealized gains in EBITDA or Contribution to Margin. As digital advertising continues to mature these profitability metrics will continue to gain prominence in valuations, performance evaluations, and compensation plans for Senior Executives.
Overall, profitability in digital advertising faces three key challenges or what Acceleration calls “Profit Headwinds."
Profit Headwinds to Online Revenue:
Ad Ops Workflow Inefficiency:
Poorly designed ad operation processes and inefficient team design can create higher operational expenses and result in risks to existing revenue or current client growth.
SKU and Price Management:
An absence of discipline on campaign minimums, ad product mix and price-tier management can lead to lost revenue opportunities or higher costs of sales.
Hidden Vendor Costs:
Opportunities to differentiate offerings or boost eCPMs via technology and service vendors seem almost infinite. However, too many initiatives suffer from a lack of ownership, clear business objectives, impact assessment, implementation planning and ROI analysis. These are emblematic of the common high-failure ratio for new initiatives resulting in meaningful hidden costs including go-to-market miscues and opportunity cost.
Through our work with numerous top tier publishers in news, entertainment and other content verticals, Acceleration has observed that “Profit Headwinds” can result in a 3-8% increase in annual operational costs – most of which could be recaptured as EBITDA or Contribution. We have further observed that agile companies can create the inverse or “Profit-Tailwinds” by methodically addressing these areas. Over the next few months Acceleration will discuss each of these key areas for improvement. First, let’s turn attention to Ad Ops Inefficiency.
How do inferior processes emerge in superior organizations?
Poor ad ops processes and workflows are generally not the result of inferior initial design or sub-par performance on the part of operational leaders. In fact, among the Profit Headwinds, Ad Ops Inefficiency is generally the most passive of outcomes: it tends to come from growth versus creates an inhibition to growth. Acceleration has isolated four common key drivers of inefficiency. Below is a high-level look at each:
Metrics and Objectives – Fast growing and successful organizations often find themselves with increasingly misaligned metrics or objectives.
- Disparate core objectives and the compensation plans of theoretically collaborative teams often disrupt efficient workflow design or practice.
- In many cases this extends from rank and file personnel to functional team-leads and even to Senior Executives.
- The challenge is often exacerbated when teams are unaware of their counterparts responsibility-set, KPIs and metrics.
- Our practice has found instances in which the office seating plan resulting in process breakdowns impacting all campaigns because revenue-incented Sales teams sat right next to delivery-focused Client Service Managers.
- Similarly, when organizations have poorly designed workflows for exceptional circumstances (e.g. campaign sizes, unique formats or targeting) the impact on co-existing standard processes can be dramatic. This is often exacerbated by murky roles and responsibilities in the event of non-standard campaigns.
Scale and Change – Ad Operation teams often run smoothly until they reach a “hidden” scale point that disrupts the team.
- Process scale points are most often not the result of a revenue milestone. Rather, they emerge as the result of a growing number of campaigns, a percentage of campaigns with a particular type of targeting or because of hard to isolate circumstances such as simultaneous campaign starts.
- Problematically, teams often react to process failures without understanding the true nature of the hidden scale points that caused the pain.
- We recently found an example where revenue was stable but a leap in Pharmaceutical campaigns as a percentage of all activity resulted in a set of operational failures that jeopardized numerous other campaigns.
- A key element in many hidden-scale challenges is change in a core business goal (e.g. a new focus on local advertisers, conditional targeting, or audience extension) without fully assessing impacts on the entire functional organization.
- Similarly, as operations scale, one-time or uncommon situations (e.g. sponsorships or special flight scheduling) can become a more significant aspect of an operation. In these circumstances, a far too labor intensive ad- hoc procedure morphs into a standard operating process with little or no consideration for efficiency
Software and Adoption – Though designed to increase the efficiency of disciplines including ad serving, contract management and yield; migration to (or upgrade of) vendor software leads to unintended process failure or inefficiency.
- Improper impact assessment prior to migration or upgrade inevitably results in downstream issues. Most often, this is the result of two common challenges:
- The first is inefficient use of the new software creating increased cycle times and higher incidences of delivery failure or QA issues
- The second, often more serious, is “Functionality Loss,” as teams are unable to easily (if at all) duplicate standard workflows of the legacy environment
- Organizations must map old and new processes before implementation to ensure they survive (or are revised) when systems go-live. We have found that this best –practice, more than any other, significantly reduces the cycle time of implementations
Data Continuity and Integration – as operations scale or when new vendor software is implemented the processes related to data and business intelligence are often the first to break down.
- Data consistency is critical to business continuity, revenue assurance and revenue recognition. Moreover, conflicting data or a lack of visibility can result in deep frustration and poor decision making, planning and goal setting.
- Business intelligence is often drawn from numerous conflicting sources. These sources can range from scaled platforms (e.g. SalesForce.com) to the all too common Excel spreadsheet located on a key individual’s laptop. The resulting duplication of effort and inconsistencies can be extreme and unproductive.
- One organization we worked with maintained all non-banner inventory forecasts on a single unshared spreadsheet. Our finding was that the field sales team lacked confidence in these forecasts and, as a result, was reticent to pitch the organization’s most valuable formats to agencies. Once confidence was restored, revenue from these formats increased by 30%.
- In addition, we have seen numerous organizations that were compelled to operate both a legacy and new data environment in order to maintain a consistent audit trail for the pre and post migration periods.
- Finally, cross vendor integration is key in refining processes and creating efficiencies. An almost universal frustration is incomplete integration between CRM, Contract Management, Ad Serving and Billing solutions.
- Interoperability and data flows between these disciplines are often facilitated by vendor APIs, which lack functionality or universal support. Often, manual entry of data acts as a surrogate for APIs creating even greater inefficiency.
Is there a better way?
While daunting, the process “Profit Headwinds” above can also be a rich opportunity for improvement. Leading digital publishers can undertake in-house efforts to attack these areas or choose the assistance of professional services firms like Acceleration to create a process “Profit Tailwind” within their operation. Acceleration deploys a proprietary methodology to assist with these challenges that is shown here:
Getting it done…
Unfortunately, re-design cannot be undertaken as a part time or incremental project in most organizations. Even the most competent in-house teams are often hampered by organizational politics or by pressing near-in revenue opportunities. Similarly, ad hoc and incremental improvement plans tend to lack the continuity needed for real success. Organizations that appoint a strong in-house program manager with dedicated responsibilities or seek an experienced partner will obtain significantly better results.
'Show me the money'
No matter how “Profit Headwinds” are attacked, a key to success is the belief that those who master these challenges achieve real ROI (or in the event of internal efforts ROE – Return on Effort). Our Publisher Practice has seen clear evidence that re- defining process leads to several common positive outcomes including:
- Lower operational costs as a percentage of revenue
- Lower turnover in ad operations personnel
- Lower cancellation rates among new and returning clients
All of which result in the Profit Tailwinds that strategic advertising teams are seeking.
Steve Goldberg (Twitter: @stevegol) leads the Digital consulting practice at Empirical Media Advisors. He and his partners help leading media companies with revenue growth, product development, organizational design, operations and strategy. Previously, he was Sr. Vice President of Strategy and Product for Undertone, a leading ad network, Chief Strategy Officer of Intellisync, which sold to Nokia and an award winning professor at the Marshall School of Business (USC). Steve also played a key role in the founding of the IAB (and served on the IAB’s first Board of Directors) and also in founding Microsoft Advertising (leading the go to market for MSN, MSNBC, Expedia and other properties.)