The Cumulus Media | Westwood One’s Audio Active Group blog looks at the of advertising ROI based on a new study by Les Binet and Will Davis titled, Go Big Or Go Home: How Small Thinking is Killing Advertising and What To Do About It. A number of key points from the study conclude the following: 1) The advertising industry’s maniacal fixation on ROI has resulted in a modest 4% 
increase in ROI since COVID but a worrying 11% erosion in advertising driven profits; 2) ROI is mistaken for business outcomes such as sales growth, profit growth, and customer growth. ROI is none of those things. It is simply a ratio of revenue/profit generated by ad spend; 3) Surprisingly, ROI and revenue/profit growth move in the opposite direction. Low profit growth produces high ROI. Strong profit growth results in lower ROI; and 4) Perception vs. reality: Marketers mistakenly believe ROI trumps budget in driving profit growth. The reality is budget is 9 times more critical than ROI in generating profit.
Ultimately, the lowest ad budget will show the highest ROI, but that’s not a recipe for sales growth. Further, since ad budget is nine times more likely to predict profit growth than ROI, Binet and Davis offer three approaches to thoughtfully setting ad budgets: Ad spend ratios, task-based budgeting, and share of voice analysis. All three can be utilized for a well-reasoned process for developing advertising budgets. See the full blog post here.