Marketing Transformation – ‘Working’ and ‘Non-Working’ spend.

The marketing industry is a hotbed of terminology – phrases and words specifically coined to describe digital or social phenomena. While each addition to the marketing vocabulary has its purpose, it is easy to get carried away by this lingo and its over-use often confuses rather than clarifies. The fast turnover of new words only adds to the problem, as the industry is not always quick enough to embrace a new definition in this fast-paced world.

One example of using an ‘old-school’ definition for a current piece of terminology cropped up in a P&G earnings call. CFO Jon Mueller stated that P&G had cut its marketing costs by reducing ‘non-working dollars’ and by being more efficient in its operations across its design, creative and marketing programs.

He said: “We have improved marketing effectiveness and productivity through an optimised media mix. Marketing spend will be below the prior year but overall effectiveness will be well ahead. We are at a point where looking at dollars is not representative of the strength of a marketing program in a rapidly changing marketing landscape.”

We agree. Looking at dollars in ad spend or marketing support is not indicative of the strength, effectiveness or efficiency of a marketing program. But neither is reducing non-working marketing dollars. In fact, reducing this number may be an indication of being less efficient, and it should be actively discouraged as a strategy for any marketer looking to transform their marketing value.

For those who are wondering: ‘what on earth are non-working dollars?’ let us explain. Essentially, all money spent on consumer-facing activities is classified as ‘working dollars’ (think of paid media spend, sponsorships or in-store activation). All money spent on creating output (like TV commercial production cost, content creation development cost, agency fees, strategy development and research) is classified as non-working because it is spent before any output reaches the consumer.

Non-working dollars were, for a while, somewhat looked down upon by the industry. Most marketers were trying to reduce this spend. Over the years, an acceptable ‘non-working’ to ‘working’ ratio has been at around 1:4. The reason that ‘non-working dollar’ spend was to be kept to a minimum was because it appeared to be money spent on results that do not work. The name implies they are ‘non-working’ after all.

Of course, nothing is further from the truth. Just think of any viral campaign. Typically, for these types of campaigns most of the dollars are ‘non-working,’ as the actual spend on third party media to support the campaign is usually far smaller than the amounts spent on creating the content in the first place. So in the future, a ratio of 9:1 ‘non-working’ to ‘working’ is not unthinkable.

Stating that your strategy is to reduce ‘non-working’ dollars to maintain your share in mass media is not necessarily the way forward. In our mind, non-working dollars have the potential to be your hardest working and most important investment in today’s world.

If you would like our perspectives on how to achieve better working versus non-working budget ratios and benchmarks then please read our ‘how to’ guide here, and fill in the form below to hear more from us.