Online Ads Boost Revenue and Productivity, New Study Confirms

Why are some companies more productive than others? It turns out, online advertising is among the top factors!

The National Bureau of Economic Research, an independent and nonpartisan research organisation, conducted a large-scale experiment on Meta Advertising last year. It involved 200,000 advertisers in the US running 700,000 campaigns.

Companies proficient in social ads tend to achieve a better return on ad spend and generate more revenue.

This leads to increased productivity for the business, which is typically measured as the revenue output divided by the number of hours worked or capital invested.

The experiment showed that:

• Overall, advertising significantly increased revenues.
  On average, each dollar spent on advertising generated $3.31 in revenue.
• Ad spending resulted in a 25% increase in the number of purchases, a 13% increase in the number of unique customers/purchasers, and a 73% increase in conversion events.
• Advertisers with more experience and those who frequently updated their campaigns achieved significantly higher returns.
• Historical ad spending was used as a proxy for experience. Advertisers with above-median historical ad spend generated over $3 for each dollar spent, compared to $1.50 for those below the median.
• Sophisticated advertisers achieved higher returns.
  They're defined as those using advanced data collection tools like Meta's Pixel and Conversions API.
• Experienced AND sophisticated advertisers are more likely to continue advertising, which in turn generates more revenue.
  Unsurprisingly, inexperienced advertisers tend to give up sooner, missing the opportunity to increase revenue over the medium to long term.

The better you are at online advertising, the more revenue you generate. This, in turn, allows for more advertising, which leads to even more revenue. It's a virtuous cycle! 🚀

Personally, I would add that companies can boost this virtuous cycle by investing in in-house resources as opposed to external agencies. I believe that in-house teams are more motivated to understand the context, learn from mistakes and improve their campaigns over time. But I’m happy to hear different opinions on this!

The study finally provides empirical evidence that experience, skills, and continuous learning in digital advertising do yield better returns!