The Flexible Marketing Budget

I’ve seen a trend amongst the (in a higher extent online-based) companies I’ve been working with through the last couple of years: The older a company is, the slower it is to adapt its marketing budget to what’s working, but also making an effort in trying out new channels. This is partly because older companies tend to not…

I’ve seen a trend amongst the (in a higher extent online-based) companies I’ve been working with through the last couple of years: The older a company is, the slower it is to adapt its marketing budget to what’s working, but also making an effort in trying out new channels.

This is partly because older companies tend to not have a comprehensive overview of ROI from various channels. And this, is in turn because older companies haven’t adapted to new technologies in terms of analytics and statistics. Although, it’s simply also because of a fear of trying out new channels. To use a worn out expression: One, over time, becomes fat and happy.

graph1-albinio

Fig. 1

Sadly, a company which started out as “curious” (trying many channels, being quick in adapting budget to channels with a high return) also has a tendency in becoming “a slowpoke” (sorry for the Pokémon reference). This is illustrated in figure 1.

So, this is of course partly because of causality. A new company has to discover what channels are working and thereafter determine how to allocate its budget between the various channels. But the flexibility is thereafter falling in an unhealthy pace.

graph2-albinio

Fig. 2

If you take a look at the two graphs on the right-hand side, you’ll see I illustrated the following:

  1. Generalized, how the average flexibility develops along with the age of a company.
  2. How it “should” look like.

Flexibility should always be high

Flexibility doesn’t necessary means that you actually have to have a high volatility in the allocation of a marketing budget between channels. But you have to be able to quickly re-allocate a big part of the budget, if necessary!

Here’s 2 key indicators of a flexible marketing budget:

  • The marketing budget should be revised monthly, or even more often in some cases.
    This is depending on how the channels are performing and what new channels are available for testing.
  • Not more than 10% of the marketing budget should be pre-booked and static for a longer time period.
    TV commercials are a kind of channel you “book” for a whole year at the time. This is undesirable, if it’s in a higher extent (more than 10%). It’s especially “dangerous” to book away a big part of a marketing budget to a channel on which it’s hard to measure the ROI.
  • Channels are continuously being reevaluated.
    A channel, new or old, should always be reevaluated on the same terms. This avoids the mistake of giving a channel to much money, compared to what it’s giving you back.

So, the reason to why a flexible marketing budget is so important:

  1. Maximizing ROI.
    By constantly reevaluating all channels and trying new – you naturally maximize your return of your marketing investment. It’s all about finding a good balance between exploration and greed!
  2. Being quick to adapt and try new channels.
    Partly because the effect almost always is much higher when a channel (or placement) is new, compared to when it’s fully exploited. Also, if a new channel or placement proves to be really good – it’s nice to have discovered it upon its release and not two years later. You have to be afraid of missed opportunities! 

An example from my experiences when working at an E-commerce:

When Facebook launched News Feed Ads, the Facebook users were highly susceptible by the new placement and ROI was crazy high! And as you might have noticed, News Feed Ads are the un-official “standard” on Facebook today.

I also remember when Facebook launched App Install Ads. What crazy low CPI (cost per app install) we managed to get, since people were so incredibly susceptible to this new format. I can easily say that our curious and flexible marketing budget made it possible to earn a whole lot of cash thanks to trying out these new placements quickly!

Same goes with Instagram ads, when it first launched. We managed to buy high quality website clicks to a CPC of $0.006.

So remember…

A marketing budget should never be static. It should be flexible and curious!

Transparency/Disclaimer: I work at Zalster where we work with managing Facebook Ads optimization for companies.