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Valuing controlled circulation readers

How much are your free readers worth to you? Not sure? The chances are that you know their cost but not their value. A combination of traditional accounting practices and a lack of analysis tools have contributed to this ignorance. Charles Arthur, who has been closely involved in efforts to develop suitable modelling tools for controlled circulation, explains why it is so important.

By Charles Arthur

70% of all business magazines in the UK are controlled circulation titles. Last year they delivered £1,082 million worth of advertising revenues, purchased by companies keen to promote their products and services through controlled circulation magazines.

Despite facing the challenges of a long term downward trend in print advertising spend, controlled circulation magazines (both print and electronic) continue to dominate the revenue and profit profile of many business publishers. Yet media owners have still to put a value or measure on the financial contribution that their controlled circulation readers deliver to their businesses.

Companies persist in looking at free circulation readers in terms only of cost and not revenue; this is an outdated view deeply entrenched in publishing custom and practice, which fails not only to recognise the value of controlled circulations but also fails to exploit the commercial benefits of that value.

Measuring the lifetime value of paid subscribers is now a well-trodden path – and quite rightly so. Whether utilising one of the commercially available software solutions or developing a home grown programme, virtually all publishing companies now have a detailed understanding of the financial contribution that their paying readers deliver. The case is proven, so why not for controlled readers?

Given that the controlled circulations underpin the advertising revenues and thereby profitability of a magazine, it is extraordinary that publishers do not consider their controlled circulations as a profit generator. Take a random sample of business publishers and the overwhelming majority will see their controlled circulation databases primarily as a cost; a cost that needs to be driven down to the lowest possible level, rather than as an asset. The controlled circulation database is the cornerstone of their existing business model, which, with the appropriate level of maintenance and development also holds the marketing intelligence to target and drive future income streams.

It is stating the obvious, but it is the quality of a circulation profile, its currency and the precision of the demographic intelligence, which delivers the advertising. It is what the ad sales team shout about and it is at the heart of the media pack. Also, let’s not forget all that blood and sweat, to say nothing of the cost, that circulation teams put into delivering the competition busting circulation audits that give advertisers the independent proof of quality. Clearly, controlled circulation data is an extremely valuable asset. Currently, the nearest companies get to recognising any financial value for their controlled circulations is when income generated from list rental and data sales appears on the monthly trading statements, usually under ‘ancillary revenues’.

The missing link

The prevailing view, that controlled circulation data is only a cost, comes, to a large extent, from traditional financial accounting practices and how companies manage and measure their businesses. Companies will often spend significant amounts of money on building and maintaining controlled circulation reader databases. Just as the costs are detailed within the expense lines of a budget, so all forms of advertising revenue, such as display, classified and recruitment are listed in the income lines; what has been missing is the calculation that links the two to express a financial value and contribution to the business.

We gather detailed demographic information on our readers in order to build the ‘ideal’ circulation profile. Whether via email, print or telephone, serious money is invested in our efforts to stay true to the traditional mantras of best practice controlled circulation – currency, accuracy, coverage and depth of information. But, as we all know, not all controlled readers are equal. A well-defined circulation profile will comprise a matrix of discreet as well as inter-related audience segments. Each segment will have its own specific characteristics, which could be expressed as purchasing influence, job function or budget responsibility for example; the combination of these will determine the level of importance to the advertiser.

Potentially, there are many benefits that can be gained from understanding the precise value of each segment of your controlled circulation and that can give you opportunities to improve the overall performance of a magazine.

Enhanced precision of circulation profiling

It should no longer be sufficient to do a straight line calculation that says each reader costs me £X to acquire or to re-register. Achieving a top quality circulation profile will be far easier when you know the value of your readers; this will enable you to make your circulation development budget go much further. If you can identify the circulation by segment, you can cut back spend on the lower value segments and divert investment into growing the higher value segments. Gaining a high level of penetration in your primary market segment will strengthen the magazine’s competitive position.

You can then target your marketing spend accurately - pretty obvious in principle and yet not always the case in practice. As it gets tougher to get detailed information from people, you want to concentrate your efforts on mining those vital segments, so a greater appreciation of really who they are and their worth to you will focus your marketing more precisely and effectively. You no longer need to get into a position where you are spending money needlessly on chasing volume in poor quality segments in order to fill gaping holes in the profile at the last minute.

You can also make changes to the circulation profile with confidence; low value readers can be targeted precisely and converted to paying subscribers without fear of jeopardising the high value segments.

At a more personal level, modelling the circulation introduces a common currency into your business where everyone adopts a uniform understanding of the value of controlled readers. It will also help to create an intra-company recognition of the ‘asset value’ of data and, consequently, of the controlled circulation team’s direct contribution to generating revenue.

Strengthening the advertising sales proposition

By applying a value model to your controlled circulation, you can provide your advertising sales teams with a powerful and persuasive competitive advantage. For example, being able to demonstrate, with pinpoint accuracy, that your circulation has a high density of coverage in the critical profile segments will provide your advertising sales team with additional ‘fire power’.

You will be able to show advertisers exactly where and how the circulation development activity is being focused to deliver the best possible coverage of their target audience. You can also reinforce the magazine brand and reputation by demonstrating to advertisers the precision and quality of your circulation development strategy.

Benefits to publishers and finance directors

A modelled circulation can give publishers an accurate assessment of the contribution that controlled circulation records make to the overall success of a magazine. They will be able to identify the value of each segment and see, at a glance, which parts of the circulation are delivering the most value. The extra intelligence gained on the composition of the circulation can, when added to market research and planning, influence the shape and scope of new product and service development initiatives.

Publishers’ customer data (which includes both controlled and paid records) is, of course, an essential, fundamental part of their business and an extremely valuable asset that is the key to continued success and development. It should be quantified and measured in financial terms; with major multinationals now expressing their customer data as a financial asset it is fast becoming recognised as acceptable accounting practice.

Valuing controlled circulation readers will, I have no doubt, provide controlled circulation teams and their publishers with an extremely useful, additional level of intelligence. It will make a very positive contribution to improving circulation management and will demonstrate to advertisers, with even greater clarity, that controlled circulations do indeed deliver precise, high value and cost efficient access to their target markets.

Developing a workable model

Together with a number of leading practitioners in B2B circulation, I have been directly involved in developing a value model for controlled circulation readers. The goal is to produce an easy to use program that will provide circulation teams and publishers with a decision support tool; this is based on the premise that by ranking, and then analysing, both the questions on the registration forms and the answers to those questions you will be able to identify and rank individual segments within the controlled circulation profile. The increased intelligence will provide a range of benefits and opportunities, from improving circulation coverage in core segments and enhancing the support for ad sales through to targeting free to paid prospects and cross selling opportunities.

The initiative to develop a model began some years ago, supported by investment from Royal Mail. With input from business circulation experts and programming support from Bellsize the early, exploratory stages of the development progressed well. While the clearly stated objective of applying a form of measurement and value to each reader remained constant, it soon became clear that the development team held two very distinct and different views on how best to define value. Should it be expressed as a sum of money or as a weighted figure, ranked by degree of importance? The pragmatic and more straightforward approach favours a financial value, which is clear and easy to relate to; we all understand monetary worth. Alternatively, a model that gives readers a weighting based on level of importance provides a constant measure that is not directly linked to the financial performance of a magazine. Royal Mail has plumped for the latter and has gone a long way to completing its programme. Bellsize, who has always supported the financial value proposition, is now well advanced in its development programme and is currently running beta tests for a number of its clients and expects to complete its model by the end of November. Both approaches are perfectly valid and it will be down to the users to decide which application, financial value or a weighting, makes most sense and is most useful to their business.