To See How Ads Pay, Just Say:
Show Me the Cost/Benefit Ratio!

By Anne Hedin

Family values and the sentimental value of keepsakes cannot be calculated mathematically. But when it comes to advertising purchases, value can be expressed very exactly — as a cost/benefit ratio.

The calculation is simple, experts say; just consider revenues generated divided by advertising costs. The result is a dollar value. Like the other measures of effectiveness discussed in this "Bolster Your Advertising Know-How" series, this number can be compared across the various advertising media you use.

"Once advertisers understand the cost/benefit ratio, they are golden," says Diana Wilson, regional sales director for Phone Directories Company (PDC), an independent publisher based in Provo, Utah. "They can honestly evaluate the great value of advertising in the phone directory."

For example, if you were a plumbing contractor advertising in "Inside," a newspaper targeting Chicago's North Side neighborhoods, a half-page ad running once a week all year round would cost you $28,210 after your frequency discount. Let's say that you pay a graphic designer $2,000 to produce the ad, for a total of $30,210. Say it generates $1,000 a week in new business above what you had been generating from your phone directory ad and word of mouth. You'd probably be pleased.

The cost/benefit ratio of that ad is $52,000/$30,210 is 1.72. In hard dollar terms, it returned $1.72 for every dollar you spent.

Larry Small, director of research for the Yellow Pages Association trade association, points to third party research on the "Plumbing Contractors" heading in phone directories nationwide. Small says, "91 percent of 'Plumbing Contractors' look-ups result in a purchase, surpassing the 79 percent average for all yellow pages headings. These figures lead to $10 of revenue for every $1 spent on yellow pages advertising, according to research by [Denver, Co.-based market research firm] CRM Associates."

So if your newspaper ad has a value of 1.72 vs. 10 for your phone directory ad, does that mean you should stop advertising in the newspaper? Of course not, an expert would advise. Advertising in the newspaper brings in new business — customers you would not have otherwise. But, comparing the two numeric values could show that the directory ad is a real bargain. Dollar for dollar, it generates five times as much business, experts say.

A Larger Presence for a Smaller Expenditure

Now, consider this apples-to-apples comparison of the cost/benefit ratio within the same advertising medium — the phone directory. Most parts of the country are now served by more than one directory. No matter which book you are in, here's what works with the public, according to the Berry Company, a wholly owned subsidiary of the BellSouth Corporation, located in Atlanta. A full 85 percent of people using a phone directory reference display ads, while 15 percent reference in-column ads — a bold listing of the company's name, address and phone number.

Consumers read the larger display ads because they provide more information that helps them figure out whom to call for what they need. The only customers who may reference an in-column ad are those who already know the company's name, and they are generally the people already doing business with the company. As an advertiser, you will never grow your business from an in-column listing, experts caution.

"Pricing for an ad in an independent publisher's phone directory usually costs about a third of what it does in the phone company's wholly owned book," says Wilson. "For example, if you are running a double quarter column index in the utility's book, for the same amount of money you could probably upsize to a half-page ad in an independent book. The result is that you get a larger presence for a smaller expenditure."

Your customers and prospects don't know — and frankly may not care — what you paid for your phone directory ad, industry observers note. Customers and potential customers respond to the size of the ad and the amount of useful information it contains, they say. You care, though. In addition to a larger presence for a smaller expenditure, you are boosting your cost/benefit ratio. Remember the calculation: revenues generated divided by advertising costs. If you cut your advertising costs to a third, you triple your return.

Does that mean you should drop your advertising program in the more expensive directory? According to experts, the answer is a counter-intuitive "no." Each book is going to have different usage rates, and the user bases might or might not overlap. Advertising in both is a strategy for generating new business, they say, just as advertising in the newspaper is.

"One of my customers is a silkscreen printing and embroidery business," Wilson says. "They have been in business six years and have advertised the whole time in the utility book. They started to advertise with us two years ago and have seen a steady growth in new clients — but only from our Phone Directories book. They receive six to eight new contacts a week, which converts to $2,000-$2,500 of new business a month. Over the past two years, this has led to a 200 percent increase in the size of their customer base."

Now that's a cost/benefit an advertiser can easily tally.

About the Author

Anne Hedin is a Chicago-based freelance writer. She can be reached via email at anne@betuitive.com.

Phone Directories Company, L.P.
135 S. Mountain Way Dr.
Orem, UT 84058

Toll-free Number: 800.228.0801

General inquiries: customer.service@phonedir.com
Sales: sales@phonedir.com

www.phonedir.com

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