Profit Ability 2: the new business case

2017 is not long ago, but it feels like a lifetime. Brexit, COVID, climate change, wars, the cost of living… human context and behaviour has transformed. Yet 2017 was the last time there was a comprehensive study of UK advertising effectiveness. ‘Profit Ability’ by Ebiquity and Gain Theory was groundbreaking, but that ground has since been shaken by earthquakes.

By 2024, we urgently needed a modern, robust view of the role for advertising investment, and whether it had changed – especially as UK ad spend trends showed that money was flowing away from media proven to deliver the best results, like TV. Advertising Association / WARC data shows that TV’s share of total UK advertising investment has dropped from 22.9% in 2017 to 13.4% in 2023.

We commissioned ‘Profit Ability 2’ – this time again from Ebiquity and Gain Theory, but also bringing in EssenceMediacom, Mindshare, and Wavemaker UK.

We wanted to form an econometrics supergroup, to cover more media channels than the original study, more sectors, and to create an unparalleled databank to provide the first post-COVID analysis of UK advertising’s financial impact and bring collective knowledge bang up to date.
 

We collated market mix modelling analyses from 141 brands, covering £1.8 billion of media spend across 10 media channels and 14 business sectors into the Profit Ability 2 databank.

To provide a true post-COVID understanding of performance, the databank exclusively featured campaigns from 2021–2023. 

Each model included had been commissioned and paid-for by the respective brand; thus providing a truly independent dataset and ensuring no inherent bias towards TV – an essential factor as the project was designed to look at the performance of all advertising channels.

By definition, the databank was a benchmark of advertisers with the means to econometrically analyse their advertising’s performance. Whilst not representative of the whole advertising economy (as it does not include the long-tail of advertisers who don’t do market mix modelling) the dataset provided a valid read on mainstream ‘big brand’ performance.

The study also explored the pre- and post-COVID effects. 53 brands were matched where like-for-like analysis was available across both pre- and post-pandemic time periods, allowing us to investigate how (if) effectiveness and media allocation has changed since 2018-2019.

The 10 media channels covered are: Audio, BVOD, Cinema, Generic PPC, Linear TV, Online Display, Online Video, Out of Home, Paid Social, and Print.

Profit Volume and Profit ROI were the business outcomes used to measure effectiveness; and the study analysed the profit generated by advertising at four speeds of payback:

■    Immediate – within one week of the advertising

■    Short-term – up to 13 weeks
(i.e. includes immediate payback)

■    Sustained – week 14 through to 24 months

■    Full – total payback 0-24 months
 

Advertising has an average short- term Profit ROI of £1.87 per pound invested, increasing to £4.11 when sustained effects are included.
 

In the automotive sector, for example, advertising’s full payback Profit ROI is £4.65. That’s more than double the financial services sector, where it is £1.95.

Looking at the short-term, advertising’s Profit ROI for retail (large) was £3.15 – nearly triple that of travel (£1.19).

The variance in ROIs is explained by nuances in the different business environments for each sector – for example value of products, operating margins, relative strength of advertising on sales.

For example, TV advertising is responsible for 54.7% of the full advertising-generated profit, with an average full Profit ROI of £5.61 for every pound spent.

By comparison, Online Video (mostly YouTube) has an average full Profit ROI of £3.86 per pound and accounts for just 3.4% of full advertising-generated profit.

As ad spend increases, the scale of the advertising effect does too, but this effect experiences diminishing returns. A channel’s saturation point is the last point where every pound invested generates at least £1 profit.

TV has the highest saturation point. Advertisers can increase investment in TV to a higher level than other media and it will continue to generate a profitable return.

Based on immediate payback, Linear TV advertising on average hits weekly saturation at £330,000 – nearly triple the scale of the next largest channel (Print) and over eight times the scale of Online Video.
 

Although Generic PPC accounts for the largest proportion of immediate payback (30.5% of Profit Volume), Linear TV is the second biggest driver (20.5%). This is followed by Paid Social (15.1%), Audio (8.6%) and BVOD (7.3%).

Just focusing on (digital) ‘performance’ channels to deliver immediate payback will leave unfulfilled profit on the table – traditional channels such as TV, Print and Radio (still) have a very important role to play.
 

The study examined the future impact of advertising today. Looking at the profit payback beyond the first week of advertising highlights the important role played by TV – accounting for nearly two-thirds (63.0%) of total all-media profit payback achieved beyond the first week of advertising.

Generic PPC search delivers 9.7% of the profit payback beyond the first week of advertising, Paid Social 7.7%, Audio 6.4%, Print 4.8% and Online Video (mostly YouTube) 3.3%.
 

Across all channels, ROI has declined 1% a year. This is a story of stability and gradualism, not a revolution in media performance and advertising profitability.

Some channels have seen bigger shifts in ROI – Generic PPC, for example, saw an increase in ROI improvement and spend, likely driven by the increase in working from home and the growth in ecommerce.
 

Profit Ability 2 is the first post-COVID analysis of the financial impact of UK advertising. It brought advertising’s collective knowledge bang up to date in eye-watering detail. It proved advertising’s incredible strength as a business investment, showing that all forms of advertising pay back, especially when sustained effects are measured. A massive collaboration, (five agencies, 141 brands, £1.8 billion of media spend) it is already the new touchstone for UK advertising effectiveness research. As one advertiser described it: “The best effectiveness research I’ve seen.”