Audience Acquisition: The Cost of Doing Business for Visitor-Serving Organizations (DATA)

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Here it is: the data-informed equation for how much money organizations should be spending in order to maximize opportunities for financial success.  

Data suggest that approximately 70% of visitor-serving organizations are not investing optimal funding in acquiring audiences.

Marketing budgets seem to be an unnecessarily emotional topic for many nonprofit organizations. Optimizing marketing investments – like admission prices – are increasingly a product of math and science (read: decidedly not “intuition” or “trial and error”). They need not be based on fuzzy-feelings and inappropriate loyalties to failing business models that ignore the realities of the outside world.

We live in a pay-to-play world where organizations have to spend money to make money. When it comes to budgeting for audience acquisition costs, many organizations seem to have fallen into that familiar trap of “last year plus 5%” that lazily assumes the continued efficacy of the same old platforms and strategies. Of course, such a strategy completely ignores shifting advertising cost factors, evolving platforms and channels, and technological innovation. Say it aloud: Nonprofits do not operate in a vacuum and cannot afford to ignore the changed economies and technologies of the world around them.

Several organizations that have made this realization have asked IMPACTS if there is an equation to inform their audience acquisition costs so as to maximize their opportunities for financial success. And, the findings of a three-year study suggest: Yes, there most certainly is!

 

The key equation for acquisition costs

Let’s first establish a few definitions and “same page” this conversation:

Audience acquisition costs are the investments that an organization makes in advertising, public relations, social media, community relations…basically, anything and everything intended to engage your audiences.

Market potential is a data-based, modeled outcome that indicates an organization’s potential engagement with its audiences. For most organizations, “market potential” primarily concerns onsite visitation. In other words, it answers the question, “If everything goes well, how many people can we reasonably expect to visit us this year? (NOTE: Market potential may not match an organization’s historic attendance – organizations “underperform” their market potential all the time…for reasons that we’ll soon explore.)

Earned revenues are the product of admissions, memberships, merchandising, food and beverage, facility rentals…basically, all revenues attendant to the onsite experience that are supported by audience acquisition investments. These revenues exclude annual fund, grants, endowment distributions and other sorts of philanthropy.

Here’s the equation to maximize your market potential (as suggested by the recently completed three-year study):

 IMPACTS audience acquisition equation

Expressed another way: Optimal Audience Acquisition Costs = 12.5% of Earned Revenues. For example, if your organization generates annual earned revenues of $20 million, then this would suggest an annual audience acquisition investment of $2.5 million.

Further, additional analysis would suggest that 75% of the audience acquisition costs should be earmarked to support paid media (i.e. advertising). So, of the $2.5 million suggested above for audience acquisition, nearly $1.9 million should support paid media.  The remaining 25% (or, in this example, approximately $600,000) would support agency fees, public relations expenses, social media, community engagement – all of the programs and initiatives that round out an integrated marketing strategy. Forget to invest that 25% at your own peril. Earned media is critical for success and many social media channels are also becoming pay-to-play.

And now the other side: Why such a large percentage allocated to paid media? Again, ours is an increasingly pay-to-play world. Rising above the noise to engage our audiences frequently means investing to identify and target audience members with the propensity to act in our interest (e.g. visit our organizations, become members, etc.). There is tremendous competition for these same audience members – from the nonprofit and for-profit communities alike.  Think of the most admired and successful campaigns in the world – do Nike and Apple rely on 3am cable TV “bonus” spots that they get for a reduced rate and that don’t hit target audiences? Nope. While earned media plays a major role in driving reputation, paid media plays an important role in a cohesive strategy – and doing it right costs money.

 

The equation in action

How does the study suggest this equation? Check out the chart below. It indicates the relationship between performance relative to market potential (i.e. how well the organization actually performed when compared to its market potential) and the audience acquisition investments made by 42 visitor-serving organizations (including aquariums, museums, performing arts organizations, and zoos) over a three-year period:

IMPACTS - Audience Acquisition

The data strongly suggests that there is a correlation between an optimized audience acquisition investment and achieving market potential. It also indicates the perils of “underspending the opportunity” – a modest investment intended to achieve cost-savings may forfend exponential revenues. (Though the data never has – and likely never will – support it, many organizations seem to foolishly hold dear to the notion that they might somehow “save their way to prosperity.”)

Additional analysis indicates that the studied organizations invested an average of 7.9% of earned revenues toward audience acquisition…but only achieved 76.0% of their market potential. However, the organizations achieving ≥95.0% of their respective market potentials invested an average of 12.7% of their earned revenues toward audience acquisition.

In no instance did an organization investing less than 5.0% of earned revenues on audience acquisition achieve greater than 60.0% of its market potential.

Overall, the data suggests that the “sweet spot” for audience acquisition investment is in the 10.0-15.0% of earned revenue range. Splitting the difference (and further supported by the findings of organizations achieving ≥95.0% of their market potential in the study) gives us our 12.5%.

NOTE: Before we start parsing the nuances of media planning and creative approaches to advertising, let’s baseline the conversation by acknowledging that each of the studied organizations were led by competent persons operating with the best of intentions. Yes – “great creative” matters – but it doesn’t offset an inadequate marketing investment. Sure, a viral social campaign helps…but it doesn’t negate the importance of other media channels. In other words, there aren’t exemptions from the need to invest in audience acquisition for visitor-serving organizations that rely on earned revenues.

If your organization is struggling to meet its market potential, it may have less to do with all of the usual suspects such as parking, staff courtesy, special exhibits, pricing, etc. and more to do with an antiquated view of the necessity of meaningful marketing investments. Can your organization overspend? You bet. However, that doesn’t seem to be the problem confronting most visitor-serving nonprofit organizations. If your organization is struggling to meet its market potential, then it may be that in today’s pay-to-play world, you simply aren’t paying enough to play in the first place.

 

Like this post? Here are a few related posts from Know Your Own Bone that you might also enjoy:

 

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Posted on by Colleen Dilenschneider in Digital Connectivity, Financial Solvency, IMPACTS Data, Myth Busting, Nonprofit Marketing, Sector Evolution, Trends 18 Comments

About the author

Colleen Dilenschneider

MPA. Chief Market Engagement Officer at IMPACTS Research & Development. Nonprofit marketer, Generation Y museum, zoo & aquarium writer/speaker, web engagement geek, data nerd, marathoner, nomad, herbivore

18 Responses to Audience Acquisition: The Cost of Doing Business for Visitor-Serving Organizations (DATA)

  1. Lisa

    Colleen:
    Excellent insights; thanks! I think we’d agree that audience acquisition is expensive, but necessary. Converting those newly-acquired guests into customers means a higher ROI every time you communicate with these “retained” guests, assuming you’ve engaged them and have ways to reach them more directly than during acquisition campaigns. Can you address acquisition vs. retention in the museum/attractions world? What share of revenue and audience vs. expenditures is typical from new vs. returning guests for a mature museum (i.e. not recently opened)?
    Thanks!

     
    • colleendilen

      This is a terrific topic for additional analysis – a great subject for a future post of KYOB! Unfortunately, the study didn’t specifically segment the audience by “new” and “returning” visitors – but now my curiosity has been piqued and I’m going to see if there isn’t a way to tease out this additional detail. Thank you and please keep your eyes peeled for an upcoming post on this topic!

       
      • Lisa

        Colleen:
        I’ll look forward to it; thanks for digging!
        Lisa

  2. Melissa

    Great article Colleen! How should we accout got being in a very expensive media mkt? #3 in the US and 30% higher than the avg? Add another 30% onto the 12.7% for a 16-17% of earned revenue mktg spend? And do these % incl. Mktg staff costs or only working and non-working? Thanks again for the excellent post!

     
    • colleendilen

      Great question concerning the cost of media by market factors! What the data suggest is that this variance is accounted for on the revenue side, and, since the 12.5% target is a function of revenues, then the specific cost factors attributed to individual markets have been contemplated. For example, the cost of media in NYC is more than the cost of media in Jacksonville, FL. However, the price of admission (and membership, food and beverage, facility rental, etc.) is also likely higher, too. In other words, if an organization’s pricing is optimal, then the 12.5% factor works across geographies.

      Concerning staff costs, the 12.5% does not include staff costs – unless an organization has internalized the media planning and PR functions that would ordinarily be accounted for within the agency fees line item. In general, we’re observing agency media planning fees in the 7.5-12.5% range (composite across all media types). So, for an organization internally placing $1 million of paid media, it would be fair to account for $75,000-125,000 of staff costs toward the benchmark. Hope that helps!

       
      • Jackie

        I’m not sure the math works out for small organizations. Maybe that reveals that small organizations should hire agencies, or maybe there’s something else going on.

        For example, say an organization spending $100,000 on overall audience acquisition based on the formula chooses to hire a Marketing Director (who is a one-person shop, and probably running off posters and designing the annual appeal for Development, along with everything else). The suggested math would indicate that we pay that person a maximum of $12,500.

        I must be doing the math wrong!

      • Colleen Dilenschneider

        Hi Jackie. I think that there may be some confusion in your application of the equation. The analysis indicates an audience acquisition investment benchmark approximating 12.5% of applicable revenues. As an example, for a smaller organization that annually earns $1.0 million of applicable revenues (including admission, membership, merchandising, food and beverage, facility rentals, etc.) this would equate to an audience acquisition investment of $125,000.

        Of this $125,000, 75% should be allocated for paid media (approximately $94,000), and the balance (approximately $31,000) allocated toward fees and other expenses traditionally attendant to audience acquisition. These fees may include such factors as media planning, creative design, public relations, etc.

        The article specifically does not suggest a recommended salary structure. In the example that you cite in your comment, if internal staff were responsible for all media planning, creative, public relations, social media, etc., then it would be appropriate to allocate the 25% suggested by the analysis to internal staffing requirements. However, this value is not intended as commensurate to a recommended salary. Instead, this value is what one would reasonably expect to invest to acquire these same services from a third-party provider. In other words, the 25% is a benchmark for services, not salaries.

        I hope that this additional explanation helps clear up any confusion about the analysis. Thanks again for reading!

  3. Jennifer

    Thanks for this article. Extremely relevant! I’m curious about your take on “market potential.” While organizations might know realized market potential, how does an organization arrive at a figure for “unrealized market potential?” I am assuming that the overall market potential is not equal to the surrounding population, as not every individual is viable visitor prospect. How do you know your full capture rate? A second question: are the “audience” acquisition costs and revenue solely in reference to admissions? Or, was membership acquisition and revenue lumped into the study? Thanks so much for this post!

     
    • colleendilen

      Thanks for reaching out with this question, Jennifer. “Market potential” is modeled analysis (informed by the type of data generally developed via an Awareness, Attitudes & Usage Study) that – as you point out – quantifies those persons in a market with the propensity to visit an organization. Beneficially applied, it is a means of identifying those persons with the demographic, psychographic and behavioral attributes that indicate an increased likelihood of visiting – this type of intelligence helps organizations focus their finite resources on “high-propensity visitors” (HPVs), while also identifying the segments of the market who simply are unlikely to engage with the organization. This helps organizations leverage their marketing resources in the most efficient manner (not to mention helping to develop programming with the greatest appeal, etc.)

      This study did not differentiate member-motivated marketing from the general marketing efforts because it is challenging for the market to uniquely distinguish these efforts (it did, however, exclude annual fund and other philanthropic appeals). For example, a TV ad that helps motivate a visit may lead to a membership sale as much as a membership direct mail piece could equally help motivate a household visit. From a revenue perspective, membership sales were included – but not any additional giving from members.

       
  4. Andrea Godinez

    Colleen,

    This is a fascinating post! Thank you for sharing this information! I was wondering, is there data that suggests the ideal allocation of advertising dollars? In other words, the ratio for spending on temporary exhibits vs. overall experiences/permanent exhibits vs. special events and programs?

     
    • colleendilen

      Thanks, Andrea! In our experience, the focus of advertising content – not to mention the media mix – varies by organization and other factors (strategic goals, revenue imperatives, respective market, etc.) I observe that most all of our clients undertake some sort of creative testing process to weigh the trade-offs between various approaches (e.g. focusing on a special exhibit vs. the “total” experience) to help inform their decision. Basically, the short answer is that we don’t observe any similar go-to equation for this type of ratio…it’s generally very unique to organization and circumstance.

       
  5. Jen

    Thanks so much for these insights. I’ll be using them as I justify my marketing budget for next FY. Are there any considerations made in the study for VSOs that do not charge an admission fee? Would I use the “market” rate of similar venues to figure my earned revenue?

     
    • colleendilen

      Great point! VSOs that do not charge an admission still operate in a competitive space where others are vying for the market’s finite engagement. For this reason, we recommend deploying a methodology that ascribes an equivalent fair market value to admissions – but this may not necessarily equate to the same value used by other area organizations. Unfortunately, we see evidence of “unintentional collusion” (More on that here) misinforming pricing strategies all the time. This said, for a quick analysis, it may be suitable to consider the price indices of proximate, “like” organizations as a “plug-in” value (with the knowledge that this value is likely no more than a ballpark number). The one saving grace of “unintentional collusion” methodologies is that they tend to exhibit downward bias (i.e. the reservation price is generally less than what an organization should command), so an analysis that relies on a competitive analysis is likely to yield a very conservative result. In other words, the optimal spending level based on a competitive analysis is likely to be less than what a more unique, data-driven analysis would suggest for your specific organization. I hope that this helps!

       
  6. Dana Hines

    Colleen, Thanks so much for your insights! I think marketing and membership people will be using your information to justify increases for their budgets going forward. One question I have is what about the organization that needs to up their game – perhaps for an opening of a new venue, wing or exhibition. Basing marketing expenses on their old budgets would not be enough to take advantage of amazing, new opportunities that will take their VSO’s to the next level of earned revenue and greater market potential. Thoughts or equations for that scenario?
    Dana Hines

     
    • colleendilen

      No doubt there are exceptional circumstances and/or unique opportunities that merit additional consideration when it comes to marketing investments. One thing that we advise is to consider not just the one-time “spike” attendant to a new expansion or exhibit, but also the sustained impact of such a development on long-term market potential. Unfortunately, some of these projects return a very short-term increase in revenues, followed by a return to a “normal” condition. In these instances, the new project may not merit additional investment. If, however, there is reason to believe that the new project will enhance future market potential (either by sustaining higher attendance levels or by increasing earned revenues), then it would be appropriate to plan for the future condition when budgeting for audience acquisition.

       
  7. Richard

    Interesting insights. Regarding Museum Store revenue as earned income. Did you use gross sales or did you remove Cost of Goods Sold?

     
    • colleendilen

      The calculation included the net revenues (less costs of goods) or the fees/commissions paid to the organization (if the organization used a third-party resource for its merchandising).

       
  8. Laura

    Hi Colleen,
    Do you have any inclination as to how many organizations have internal design, PR, media buying? We do most everything in-house and so parsing out the percentages paid to staff (plus benefits) is a bit tricky. But I am curious if we are outside the norm in keeping most things in-house.

     

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