What is the value of a reader? Depends what you mean by value, I hear you retort. So let me define the question another way. For every reader or advertiser that buys your newspaper, how much revenue do you receive, and how much profit do you make?

In the United States, for every copy sold across the year, the newspaper generates about $125 in circulation revenue and $820 in ad revenue (dividing the advertising revenue by circulation). That’s about $1,000 per copy over a year.

Here in France, the figures are very different; $435 of circulation revenue and $165 of advertising revenue. Around $600 in total.  

The French enjoy the highest retained cover prices, while U.S. papers attract the highest ad revenues. (Of course, the yield will depend on the type of circulation or advertising dollar considered.)

Typically, after costs, a third of a newspaper’s cover price revenue works its way out of the circulation department to cover costs of other departments. At many newspapers, the costs of generating circulation are greater than the revenue they receive. Some are content with this dichotomy because of the high advertising revenues they can generate through offering marketers a bigger circulation.

Free dailies are the ultimate example of this approach.

Still other newspaper publishers are blissfully unaware they are running their circulation department at a loss.

Breaking up the pie

Assessing the ad sales part of the revenue pie, costs eat up about 14 percent of each dollar that comes in. Again, this will vary, from newspaper to newspaper and from advertiser to advertiser.

Advising newspapers on their strategies and operational effectiveness, I regularly unearth scores of advertisers that are paying so little for their space and service they might as well be paid to go away and never come back.

The first lesson in all of this is that few newspapers actually measure the retained value of each customer.

Conducting such an analysis not only leads to greater retained sales, but allows publishers to examine which customer segment will deliver the greatest return on investment.

Wasted effort

Consider the following. The typical Western European reader reads only about a quarter of the words we put in front of him. Few advertisers are seeking to reach more than 10 percent of a newspaper’s readers.

Car dealers and manufacturers, for example, are only appealing to those people who want to buy a car. Travel agents and resorts, meantime, only want to reach those people who are planning a vacation. Such marketing mismatches are one of the key reasons advertisers are moving to the Internet.

Perhaps the most telling example is recruitment advertising. A few years ago, I worked for a business newspaper that built its circulation on the back of a database containing the country’s senior business executives.

One day, a company called our office, seeking to place an ad to find a finance director. The company was happy to pay the newspaper thousands of euros to buy the ad. The newspapers’ advertising director calculated that the target audience for this job was a few hundred people, a third of whom read the paper.

To help the company reach the other two-thirds (those executives who didn’t read the paper but were on the database) the ad director concocted a strategy in which he’d send newspapers to all of the advertiser’s prospective candidates for a small additional fee.

The advertiser trebled coverage of its target. All of the prospects learned of the job, and some of them might just have thought about subscribing to the paper in the future. And the cost - a fraction of the cost of the advertisement - was paid for by a grateful company.

Here’s the lesson: If you divide up the value of advertising categories, the revenue per read copy can be enormous, running into 10s of dollars in a single copy.

Bang for the buck

We newspaper folks don’t like these calculations. Even if we are willing to think of the consequences, few of us have the time to do the calculations that expose the weakness of our proposition.

But advertisers are doing these calculations every day. And the consequence of their computations is a downward evaluation of newspapers’ efficiency.

The good news is that such calculations can form the basis of new business models that can lead to new product innovation and new services to advertisers.

Increasingly, we are being measured by each individual customer on the basis of his or her single reading experience or transaction. We need to apply similar rigorous measures to ourselves.

Jim Chisholm is a consultant and strategy advisor to the World Association of Newspapers and director of the association’s Shaping the Future of the Newspaper project, which looks at new developments in the newspaper industry. He can be reached via e-mail at jim.chisholm@futureofthenewspaper.com. More information about the project is available at www.futureofthenewspaper.com.