Inventory Trade-off Decisions – Are You Making the Right One?

Revenue, Makegoods, Promos – as a broadcaster, you are intimately familiar with these three words as they are core elements that make up your inventory - and ultimately drive your business. They also represent the high-level trade-off decisions that you must make on an annual, weekly, or even daily basis.

Within your organization, you are faced with many conflicting decisions that need to be made when it comes to inventory trade-off decisions. Corporate Finance and the local GM want more revenue but also need to minimize the amount of liability on the books from makegoods. Sales wants to keep their advertisers and agencies happy, so they make sure their clients are first in the pecking order for prime inventory and fulfilling makegoods. Programming wants more promos to advertise fresh content. Revenue Management sits in the middle and is ultimately accountable for making sure the overall inventory is maximized to its fullest potential.

Promotions

Promos can help drive your own ratings, but you forgo compensation for that spot. Without promos (and the right balance of promos), your ratings decline and your overall prices dive along with them – so not having them isn’t an option.

Makegoods

That’s when leveraging makegoods is essential. Those unfortunate Audience Deficiency Units (ADUs) that you must offer up when you don’t hit your guaranteed ratings target – and which ADUs should you deliver first: your most valued advertiser or the one with the most ADUs?

Revenue

For your cash-creating spots: should those be for Upfront, Scatter, or DR / preemptible buys? Should you sell to someone targeting Males 18-49 or Females 24-54? How should you price and bundle your inventory for each buy so you don’t sell your premium inventory too quickly and be left with a bunch of fringe inventory that you must sell for pennies on the dollar?

Let’s assume a standard clock setup with 14 minutes of sellable / promotable inventory within an hour. In this example, you must make over 530 trade-off decisions each day (let’s just ignore the 5-hour overnight period for now and assume we’re in a world of only 30 second ads and only selling one demographic). That means almost 200,000 decisions each year per network / station, per demographic. Most reading this blog have more than 10 networks or 100+ stations and sell across 20+ demographics. That means there are now hundreds of millions of decisions to be made each year. So many questions, and so many directions you can go in, but which path do you take? How do you allocate the right amount of inventory to each bucket when there’s millions of variables and many unknown outcomes? How do you allocate the right amount of inventory to each bucket without increasing risk?

What if you could drastically reduce the risk of making a catastrophic decision? More precise demand and ratings forecasts could bring increased certainty and confidence to all of your decisions. You could finally optimize use of available ad inventory and ensure you hit budget by better aligning supply (i.e., your available ratings and inventory) and demand. You could more proactively course correct to mitigate your overall liability volume while not low-balling your guaranteed impressions.

In media, everything revolves around hitting your budget and maximizing inventory usage, so what are you doing to manage yours?

Don't Miss OutSubscribe to Our Blog