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Built for your whole team.
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Trusted by all verticals.
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Measure any type of ad spend
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Many Possibilities. One Platform.
AI and Automation
The Always-on Incrementality Platform
This article is the third of a four part series inspired by our recent publication: The Ultimate Marketing Budget Planning Handbook. Each installment is focusingon a different budget planning tactic and how to master each one. This method is most popular for growth companies which have a performance mindset under a top-down yearly budget.
The majority of companies rely on a planned marketing budget. For B2C companies, marketing may often be the most expensive line item in their overall budget plan. In some cases, marketing expenditures can surpass the combined costs of all other budget items. Due to its significant impact, a planned marketing budget typically undergoes a rigorous and iterative process: top- down, bottom- up, built from scratch, and repeatedly challenged.
A well-structured marketing budget serves as a guiding principle for a company. It reveals the potential for scaling within constraints such as a target CPA or a target ROI. These figures help shape the company's overall growth or P&L profile. Now let’s dive in and set up a planned marketing budget with 6 easy steps.
Step 1: Set Clear Objectives and Benchmarks
It’s always important to start with a goal and a benchmark. To effectively plan a marketing budget, it is important to understand the performance progression and Lifetime Value (LTV) curves of customers. This knowledge helps in forecasting future revenue and long-term strategies. It is crucial that for this step you focus on your blended CPA or ROAS. Blended combines the results of paid and organic, assuming that paid influences organic, and vice versa. Then it is time to look at each platform and see how they differ, ensuring you can distinguish benchmarks for each platform (iOS, Android, Web, etc.) The next step is to take a closer look at the market level, segment your top market(s) and set benchmarks for those. Lastly, look at the key milestone cohorts for budget allocation (d7, d30….)
Step 2: Identify your Top Performing Marketing Channels by Contribution
Assessing the performance of current advertising channels allows companies to identify which channels are driving the most value. This evaluation is essential for reallocating resources to maximize ROI. Understand the contribution of each of your media channels to a specific market. Next, map these sources out based on performance vs. their goal. At this stage it is important to identify the marginal KPI you are at, on a channel/ market level.
Step 3: Plan budgets based on Marginal KPI
Growth planning should focus on marginal performance rather than vanity metrics.
First set your monthly budgets based on the sources that yield the most opportunity, ensuring that they are both on target and have a good marginal performance.
Then budget allocation needs to be done on a channel/platform (and country, if possible) level, based on a prioritization waterfall. The Marginal KPI represents the cost or value of acquiring the next user at your current spending level. It's determined based on recent adjustments in spending and reactions similar to historical patterns, and can be directly obtained using INCRMNTAL. Marginal performance varies with spending levels and tends to cost more than average performance, influenced by diminishing returns; thus, maintaining a low marginal ROAS is feasible if total ROAS meets target thresholds.This approach ensures that marketing efforts are directed towards activities that contribute meaningfully to the company’s bottom line.
Step 4: Use Heuristics and Rationale in Decision Making
This step leverages past experience and logical reasoning to guide future actions.
In order to make effective choices with your marketing budget it is important to apply your marketing knowledge and understand the range of restrictions and limitations of your sources. This stage is further down the plan as to avoid existing biases, and apply rules and rationale only after we find the opportunities. Defining targets based on the range of tolerance, allows advertisers to capitalize on opportunities, while maintaining control over their budget.
Step 5. Monitor and Optimize Frequently and Decisively
It is critical for brands to frequently analyze their performance data and adjust spend levels across all channels to stay on track with their overarching KPIs. We advise advertisers to keep 5-10% of their budget for testing new channels and/or creatives. Monthly advertisers should also analyze cohort development (by platform and country) as well as measure their marginal performance and limit channel spend.
A planned budget is a prime opportunity for ongoing optimization, enabling marketers and marketing analysts to regularly monitor, analyze, challenge, scrutinize, and experiment with new ideas. Some companies review their plans monthly, while others choose to have quarterly assessments. Regardless of the approach, be mindful of the saying that “making plans is a great way to make god laugh”. An effective planning cycle will always start with a post mortem and learning from the previous planning vs. achievement cycle. Embracing continuous learning and experimentation approach, rather than punishing mistakes – helps companies improve their results from one cycle to the next.