Add3 – Digital Marketing Agency with offices in Seattle & Portland

    BUDGETS: the devils that follow marketers across all media formats, publishers, and seasons.  Company to company, org to org, budgets are built and enforced differently, but in the Digital Age, where performance is infinitely trackable, there are right and wrong ways to approach budgets.

I have seen many a company intentionally and willingly decline a profitable sale or elect to not acquire a monetizable user.  I have also witnessed a willingness to spend unprofitably on marketing outlets that, if set up properly, are infinitely trackable.  The reason for these questionable decisions?  That much revered, sometimes feared B-word: BUDGET.

Where budgets are concerned there are two types of companies:

  • Those who “get it” – They allow for flexible budgets that are holistically informed by performance across marketing channels.
  • Those who don’t “get it” – They never left the pre-internet mindset of “This is how much we can spend on {INSERT MEDIA TYPE HERE} and then we will sit back and wait for results.”

The second approach can lead companies to leaving money on the table or, even worse, spending inefficiently to hit the prescribed budget target.

Stated this way it all makes sense: “We’re making money?  Spend!” or “We’re losing money?  Stop spending!”  Why then do so many organizations containing smart people let ordained budgets trump responsible program management?


Client A: Leaving money on the table

The client had an unlimited appetite for Amazon, where he was a Platinum Third Party (3P) seller, meaning goods are sold through Amazon’s platform and Amazon takes a commission on the sale.  Conversely, he had tremendously low and inflexible budgets for all Product Listing Ads (PLA, the ads that show product images on Google and Bing’s search results pages) and Comparison Shopping Engines (CSEs such as Pricegrabber, Shopzilla, and

The client was GUARANTEED to make money on some of these outlets as my firm and I had negotiated low revenue shares with multiple partners.  Going further down the black hole of befuddlement, a customer, once acquired, was worth a staggering amount of money and their units per order jumped from 1.3 on Amazon to more than three through PLA and CSEs.  This was important because shipping was free on most orders, so the more items the buyer stacked into the cart the more profit the client generated.

We had to routinely shut down channels with a compelling rev share because we were overspending, yet hyper profitable AND driving new users with high Lifetime Value (LTV).  There have been times when I’ve considered parting with half my liver or a kidney for the level of performance we were driving but every time I asked for money to keep the gravy train running the response was the same: “We don’t have the budget.”  Even after explaining this was a double down moment; how they were saying “no” to more users and profitable transactions their tone never changed, the stone wall remained uncompromised.

While an extreme example, this client willingly let a number, set in stone the previous December, limit his ability to profitably drive value for his employer.  Hyper-efficiency, while less damaging than the previous example, is equally short-sighted.  An advertiser who has set their goals to 500% Return on Ad Spend (ROAS) and is returning at 1,200% ROAS is still leaving money on the table and should ratchet spend to collect those funds.


Client B: Use it or lose it

On the opposite side of the table live the clients who, come the end of their fiscal year, need to spend their entire budget to ensure they receive a sufficient allocation the following year.

Client B suffered greatly (and inefficiently) at the end of her fiscal year as a result of this line of thinking by management.  She knew spending at the budget prescribed rate was doomed to be inefficient given the payback restrictions as the budget was created months ago in anticipation of two programs that never materialized but were coming early in the next year.

She learned from colleagues that what she spent in the present year would dictate what she received the next year and, due to company politics, historical spend carried more weight than historical performance.  Since she wanted the budget the following year we completed multiple estimates on what could be spent at various efficiency levels.  Ultimately, we elected to spend with marginal inefficiency to ensure she had the budget for the following year.

I likened this to a second grader spending $50 on Skittles when $2 would have worked just as well.  A better approach would have been to spend at efficiency goals and bank the remainder.


Tying this all together

Targets need to be flexible, and the marginal efficiency of moving from 1,200% ROAS to the 500% target should be considered.  The exercise of walking that elasticity curve holds a great deal of benefit to the marketers as they learn how the competition and rate statistics change as they move toward the target.  This exercise can better inform targets and inputs for future forecasting.

Spending to maximum efficiency requires time and, to do it properly, loads of analysis.  Ultimately, a target value needs to be defined and many elements can contribute to this value.  Sometimes marketing teams are responsible for this target number, sometimes not, but once that number is produced the onus falls to the marketers to spend as much as possible within the efficiency guidelines.


[hs_action id=”10874″]

About Add3 Team

Comments & Replies