Content Marketing Economics – Part II: Consumption and Profitability

Estimated Reading Time: 5 minutes

In the first part of this post, we discussed the production and distribution of content. Here, we’ll going to dig into how people consume your content, the desired outcomes of that consumption, and whether what it costs you is generating a profitable return.

How does consumption relate to production and distribution? It can be represented by this simple equation:

Consumption = Production * Distribution

The better the quality of the content – the production – multiplied by a larger or more targeted channel – the distribution – the greater the consumption.

Obviously, the value of consumption needs to be greater than the cost of production and distribution. To help get to that level, let’s start by putting a value on consumption.

Valuing Consumption

Remember, we’re thinking like economists here, so that’s how we’ll frame things. Ask yourself these three questions about consumption. What are you after? What are you paying for? and What is the value?

What are you after?

Ultimately, you are trying to convince someone to buy your product, but you may be early in the buyer journey – at the very top of the funnel, if you prefer to think of it that way. You are paying for outcomes, which are not necessarily purchases of your product.

Here are three outcomes marketers typically seek:

• Awareness – Introducing a product or brand to a consumer to increase his or her predisposition to buy. Most advertising and PR is aimed here.
• List building – Growing the number of people in a database, so you can later market to them. Any form that captures an email address, such as a blog subscription form, fits this category. Fun fact: Did you know product warranty cards are aimed at list building, since the manufacturers lose their direct connection with the consumer once their product is sold through distribution?
• Lead conversion – Converting either a new prospect or someone in your database into someone ready to buy.

What are you paying for?

To achieve the three outcomes above, there are six basic actions that a potential customer can take. Each of these actions is paid for.

• Views – Awareness
• Shares – Awareness
• Clicks – Awareness (via future online retargeting)
• Subscribes – List building
• Form fills – List building or lead conversion
• Contact sales – Lead conversion

You can buy views in a number of ways. One of the most common is buying display ads. Shares are an organic activity, so what you are really paying for is great content that cries out to be shared. Clicks are not really worth much on their own, though many marketers report on them. What really matters is what you do with the click. To me, the value is in the fact that the user has now been tagged with an ad-retargeting pixel. Subscribes and form fills are not actions you can buy directly, but rather something you earn with good content or a great offer. Sales contact requests are really the cumulative costs it takes someone to be ready to buy.

What is the value?

How do you value these actions? Alas, I can’t give you absolute numbers, but I can describe how to derive their value. It varies by company, and possibly by product line if you have more than one.

To begin valuing different actions, we’ll think about four stages of a lead: pre-funnel, top of funnel, mid-funnel, and bottom funnel. Pre-funnel is the stage when someone is either unaware of or not engaged with your brand or product. Top of funnel is when they express some initial interest, or are considering a potential purchase.

Moving down, mid-funnel is when they are seriously considering a purchase and probably doing some research or comparing prices. Bottom funnel is when they are engaged with your sales team or online store. The time spent in each stage of the funnel will vary. Generally speaking, the more expensive a product, the more time spent in each stage. You spend more time shopping for a car than deciding on which drink to pick out of the cooler in the convenience store, for example.

Why is the funnel stage important? Because buying is a journey and can be thought of as a funnel. You have lots of people in a market (pre-funnel) and many who are potential buyers (top of funnel). The number is winnowed in each phase of the process, until you end up with a certain number of customers. When considering your costs, you may need to think about content costs for each stage. Hopefully, as they enter the final two stages, these customers are in your database, so your distribution costs drop or become essentially free.

Assigning a specific value may be difficult if you are just starting out with your demand-generation efforts or have not been measuring all aspects of your funnel. Measuring awareness is hard at any stage, though display advertising costs and conversions can be tracked. This is how I look at measuring each action.

Action	What to Measure
Views	The number of people who see your ad or content
Shares	The number of people who share your content
Clicks	The percent of clickers who later convert via ad retargeting
Subscribes	The percent of subscribers who later fill out forms or contact sales
Form fills	Your known lead conversion rate from forms
Contact sales	Your known lead conversion rate from sales contact forms

If you have a mature funnel, and you have been measuring, you can plug in values for each action. Let’s assume we have a product that sells for $1000. Let’s also assume some conversion rates. Think of views and shares as pre-funnel, and the subsequent rows moving down the funnel. The closer we are to the bottom, the higher the conversion rate.

Action	Conversion Rate	Average Value
Views	0.1%	$1
Shares	0.1%	$1
Clicks	1%	$10
Subscribes	5%	$50
Form fills	10%	$100
Contact sales	25%	$250

These are average values, since some leads never convert. For example, if 1 out of 100 leads converts (1%), and our sales price is $1000, the actual value of 99 of your leads is zero, but the average value of each one is $10 ($1000 * 1%). So, each click above is worth $10. You can do the math for the other actions.

Again, these are just example values; you will have to come up with your own. How do you do that? If you are already tracking everything, you know the value of a lead (subscribes, form fills, contact sales). Likewise, you probably know the value of a click from your PPC or paid social activities, as this is the step before conversion. Views and shares will be very low, typically, and something you can really only measure by doing it. To get started, pick a number much lower than your click conversion rate, at least by a factor of ten.

So, now that we know the value of each action, it’s time to think about whether we are making or losing money – our profitability.

Profitability

Deriving the overall profitability is straightforward. It’s nothing more than an ROI equation.

Value of Actions – Cost of Production – Cost of Distribution

__________________________________________

Cost of Production + Cost of Distribution

Let’s use the example from above. Each click is worth $10 to us, and we get 1500 of them. (You need to calculate this on aggregate, typically, as the cost of production is a one-time expense amortized over the lifetime of the piece.) We paid a writer $2500, and a designer $1000, to create an ebook for our product. Then, we spent $1500 on Twitter promoting the ebook to our audience.

$15,000 – ($2500 + $1000) – $1500

__________________________

($2500 + $1000) + $1500

This reduces to

$10,000

  ______     = 200%

 $5000

When you are really good, you will add up all costs of actions during an entire buyer journey. For example, the initial display ad or content that let you drop a retargeting pixel, plus the cost of the retargeting, and maybe the production cost of the report that caused them finally to ask to speak to a sales person.

Now you have a framework to use when planning your content marketing strategy. By understanding the cost of production and distribution, weighted against the value of specific actions, you can remove subjectivity from the process and base your investments on their profitability.