We were recently asked a very good question by a prospective client – a question that is probably on the minds of a great many people considering trading their excess inventory for advertising. The question is, "How much advertising will we need to place in order to use the entire advertising credit we received for our excess inventory?"
In a corporate trade transaction, Evergreen-Partners purchases an excess inventory in exchange for an advertising credit valued much higher than the cash liquidation price. It's not uncommon for an inventory worth $500,000 in cash to be bought by Evergreen-Partners for a $1MM or greater advertising credit. To reap the value from the credit, the seller of the inventory will place advertising using the credit to pay for a portion of their invoices.
This leads us to the question of how much advertising will need to be placed in order to use that credit. Actually the full question we were asked was, what is the formula that determines the full amount of advertising.
The formula is as follows:
There is, however, a shortcoming to this formula. The advertising percentage is usually not a fixed number applied to all your advertising placed by a trading company. Evergreen-Partners will look at each media schedule and determine a percentage of advertising credit that maximizes the use of that credit. So, while one particular schedule may use 20% advertising credit, another may use 25% due to market conditions, our trade positions, etc.
The best answer, therefore, regarding the full amount of advertising needed to use the entire credit is an approximation, not an exact number, because of the dynamic nature of how Evergreen-Partners structures its transactions in order to insure that you use the advertising credit within the shortest possible time.
Use the above formula in order to gain an approximate total media value, but realize that we will be working to reduce that number with every media schedule you provide us.
By the way, in order to gain a very good ROI on the trade transaction, you don't need to spend even close to the entire amount of the advertising credit we pay you. But we'll leave that explanation for another post!