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Case Study: Digital Media and Advertising

The most difficult companies to execute an R&D study for are those that are in traditionally non-technical industries. This is especially true for the field of digital marketing which has always been perceived as an artistic and business-focused venture and not full of the technical challenges and work based on computer science. However, the landscape of this industry has changed significantly from even five years ago.

These days, a digital marketing agency does almost as much development as any software development house because of the highly dynamic nature of the industry. More and more, clients are demanding better metrics, better performance, and more bang for their advertising dollars. Specifically, there are numerous firms in this industry that focus on building tools that allow their clients to create intelligent marketing strategy that employs real science and real world numbers as opposed to nebulous claims about increasing market share.

These days, digital marketing firms employ an agile software development process. Unlike traditional waterfall development where development of the entire product is done step-by-step, each step being defined during the early conceptual development, agile development focuses on small development goals executed on truncated schedules in easy-to-manage chunks, also known as sprints. This agile development process allows companies to create software at a fast pace, with clear direction, but still be flexible enough to respond to feedback, internal changes and changes driven by external factors. The end result of this highly adaptive approach is that the team is able to focus their development effectively, reduce the time to market and greatly improve the final product.

For digital marketing firms, especially those that perform business intelligence analytics have a unique approach that allows them to provide statistics in real time to offer visibility to their client base. This requires not only front end development, but a robust infrastructure that supports real time analysis of data from numerous sources. Often, this means integrating application programming interfaces (APIs) to create direct connections with search engines like Google and Yahoo to give real time metrics on specific campaigns and targeted advertisements. In the case of some, this data is used to dynamically adjust the marketing campaigns to maximize reach and conversion.

A digital firm located in Southern California, evaluated their activities to determine if there was value in conducting an R&D tax credit study based on the work outlined above. From the start, there was a push toward eliminating any non-qualifying activities such as graphic design and copy writing. However, upon examining their workforce, the firm realized that many of their employees were conducting qualifying activities like programming new features, new external data connections and developing algorithms that allowed for real-time analytics and dynamic modification of content.

Ultimately, the firm was able to qualify roughly 40% of their entire payroll as qualifying for the tax credit. This included support staff had a small impact on the overall development in addition to data scientists, developers and engineers that made up the bulk of the core R&D group. With roughly $2.5MM in qualifying research expenses identified, the firm was able to generate over $200,000 in R&D credits on their 2015 Federal and California state returns.

Will Chang

William Chang is a Managing Director at R&D Incentives Group with more than 13 years of experience whose primary responsibilities include providing tax credit consulting services to CPAs and their clients, managing RDIG’s relationship with its referral partners, and managing active audits. William has extensive knowledge of federal and state tax credits and incentives and is a frequent guest speaker for CPA firms. Prior to joining the R&D Incentives Group team, William founded The Enterprise Zone Company, a tax credit consulting firm based in Southern California.

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