Effects of high interest rate on advertising

interest rates We are in rather troubled financial times, with inflation and interest rates going through the roof. That has made things rather tight for consumers and businesses alike, with everyone keeping a rein on their finances until things begin to level out. Businesses still have to deal with rising expenses, which include getting the word out via ad serving, but the current rates have certainly changed how they do things right now. We are going to get into some of the things that advertisers are focusing their attention to at the moment and what they are doing to keep business running smoothly in some trying times.

Borrowing is getting more expensive

In order for a business to grow, it needs more capital to hire more people, buy more machines, and expand to more locations. Obtaining a bank loan is the most common way to raise that capital. However, interest rates increased significantly within the last 9 months and are on track to go even higher because the Federal Reserve is fixated on bringing down high inflation and intentionally slowing growth and demand. The same loan now might cost twice as much in monthly payment. This raises the cost of doing business and many companies are forced to slow their growth for the moment. Businesses are getting pushed back from both ends. Revenue and growth is slowing while expenses are rising. Companies are now looking at smaller profit margins, which do have a negative impact on advertising, as we will see in the next discussion point.

Keeping all eyes on costs

In terms of advertising, the goal is always to see positive results from every ad campaign, which is easy to do with a third-party ad server. This is even more true now, as advertising budgets are on the chopping block to help with rising costs from pretty much everything. Stopping advertising altogether is simply not a viable option because you still want to maintain mindshare and sales. However, advertisers are now paying much closer attention to ad campaigns, and to their ROI in particular. With a more limited ad budget, it’s more important that every campaign delivers good results for the advertisers.

Consumers are spending less

As we mentioned at the top of this piece, consumers are also feeling the pinch of high interest rates and high inflation. They are now paying more than ever for pretty much everything. High interest rates directly affect credit card payments, car loans, mortgages, and all manner of other payments that come out of your bank account monthly. 30-year fixed mortgage rates rose rapidly from 2-3% to 6-7% in just only 9 months. Geopolitical issues such as the war in Ukraine and tension with China make inflation higher. That means people feel poorer and have less disposable income, which is something that advertisers must be aware of. The same dollar buys fewer items than it was just only months ago. Consumers are forced to cut back on their spending and focus on the essentials. Offering discounts and specials is one way to help and incentivize consumers to choose where to spend their money.

Part 2 - Industry disparity, ad optimization, cash is king


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