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There’s been a lot of talk about how inefficient the process of placing digital advertisements is as compared to TV and other traditional media.

For example, according to Google, “Managing display ad campaigns can take up 28% of the budget in overhead, compared to 2% for TV. Which means for every $100 you spend on display, $28 goes to process management such as negotiation with multiple sites, re-planning, faxing insertion orders, trafficking hundreds of ad tags and so on. Such inefficiencies have impeded the growth of the industry.”

Being process and workflow geeks, we wanted to understand this inefficiency at a  deeper level.  So, we conducted our own study to drill into this from a media agency’s perspective.

The goal of the study was to answer a basic question: “How much does it cost an agency to create and execute a digital media plan?“

We faced our first big challenge right out of the gate. This question is not as simple as it seems because the cost depends on myriad factors.  When we asked “how much?” the answer we kept getting was essentially, “it depends on so many things I could not tell you.”  Dave Smith of Mediasmith was kind enough to enumerate the 17 factors that influence the cost of a media plan. So, to move forward we constrained the inquiry to a specific scenario of a $500,000 media budget buying guaranteed online display inventory on 10 websites with 10 placements each.

The second big challenge we faced was in calculating and presenting the the findings. Just knowing the bottom line cost does not provide much insight. Knowing what drives the cost is where the insights begin. So, we developed a Digital Media Planning Workflow Calculator which is an activity-based costing model.  We refined this model throughout the process and plugged in the data we gathered from digital media planning experts through our interviews.

Finally, we crunched the numbers.

The answer? It costs $40,356 to create and execute a media plan under the $500k scenario.  This works out to about 8% of media spend.

8% of media spend is much lower than Google’s number of 28%. However, I believe their study covered additional activities such as advertiser, creative, and publisher activities while ours was limited to media activities within the agency.  The 8% seems to be “in the ballpark, but a little low” as we validated the findings.  A rule of thumb is 10-12% of media spend varying by media spend.

Where does all that money go? We dissected the process by task and by job function and identified the hot spots.  It’s important to know which job functions are performing the tasks because the costs of job functions vary widely (e.g. Media Director versus Ad Trafficker). The reporting phase is the most time-intensive at 113 hours but the strategy phase is the most cost-intensive at $11,454.55 because of the personnel involved.

There is a tremendous amount of manual labor involved in the process of creating and executing a media plan. We counted 482.5 hours per campaign involving 11 different job functions at an agency. That’s a lot of work and people involved!

To get the detailed analysis supporting the result (or to run your own numbers), download the Digital Media Planning Workflow calculator – it’s free and easy to manipulate in Excel.