Will an unlimited budget model work for your brand?

Simon Gellibrand has five things your board needs to take into account when considering an unlimited marketing budget model.

simon gellibrandA growing number of Australia’s savviest marketers have thrown out the rulebook when it comes to setting their marketing budgets. The advent of performance marketing has seen many of these marketers successfully argue for and utilise an unlimited marketing budget model that gets sales results.

It may sound fanciful that in today’s environment – where the pressure to deliver real business results and marry them to marketing priorities is paramount – money can flow uninhibited into the marketing pot.

While companies do need to have some view on what overall marketing dollars will be, capping marketing spend, particularly for performance marketing channels, leaves sales on the table.

Performance marketing channels including search, programmatic display and paid social can clearly connect marketing activity with revenue and achieve results.

Using performance means that marketers can determine the maximum amount they are willing to spend to acquire a customer, and if they are remaining under that goal, there is virtually no limit on spend.

 

So… can you have an unlimited marketing budget?

Usually yes, but it does depend. There are some considerations that need to be examined to determine if this type of model will work for your brand.

When collaborating with clients using unlimited marketing budget models five things need to be taken into account:

 

1. Pure digital business models

Online-only businesses that use cost per acquisition (CPA), return on investment (ROI) or return on ad spend (ROAS) goals allow us to manage digital media spend with the most effective results.

It also means that if there is a change in the actual result, strategies can be applied to pinpoint why, and then revert back to the original goal.

The ‘diminishing returns’ inflection point will eventually be reached, however performance allows clients to predict what the ceiling is and skate as close as possible against the point of diminishing returns before the investment sweet spot is found.

It may involve going over the target by up to 5% to realise that threshold, before reducing media efforts to return the CPA to target.

 

2. Online/offline business model

Brands with a hybrid business need to consider the ramifications of this model on their offline sales. First and foremost, the offline sales loop needs to be closed to measure the impact of digital media in the offline environment.

For example, for a phone call driven by search marketing, what is the appropriate cost-per-call metric? If this has been defined and agreed, an unlimited budget model can apply.

 

3. Awareness goals

Historically, linking brand awareness campaigns with revenue has been challenging. For example, it’s difficult to demonstrate the link between a 30 second pre-roll video to a business metric. However, using tools such as the Brand Lift Study in YouTube TrueView makes it possible and helps clients understand the effect the pre-roll had on the exposed audience.

This measurement can also be used to test TV commercials and reverse engineer the brand uplift to provide a cost-per-improvement in brand awareness.

 

4. Customer lifetime value (LTV)

The unlimited marketing budget model means brands are more driven by acquisition targets than marketing spend targets. Again, CPA targets are crucial. In order to set the CPA goal for your brand, it’s important to determine the average lifetime value of your customer, multiplied by the average order value to develop a break-even point.

Savvy marketers also know that money is not made from the first sale, but from the ongoing relationship with a customer, so long term value is key in determining CPA.

 

5. Known brand versus unknown brand

Brands entering the market in a competitive space need to prepare for a higher than average CPA to acquire customers against mature brands. Known brands have the luxury of historical acquisition figures and can apply their previous learnings. They can more easily add incentives or take advantage of appetite in the market that would reduce their CPA.

 

It’s all about the CPA

In essence, marketers can work with an unlimited budget with a well thought-out CPA and acquisition strategy.

We see this model working every day and acquisition targets being exceeded. But flexibility is required to ensure the best results are achieved for brands.

I predict more online-only brands will adopt the unlimited budget model in the future, as marketers focus more on sales and CPA targets, than spend targets, because it’s the most effective.

This approach challenges marketers to move away from the traditional budget-setting mindset, where the most prominent considerations are often around last year’s spend, and shift to a more strategic position to generate new ideas and approaches that work.

 

 

Simon Gellibrand is business director at Performics Australia.

 

Further reading

 
Image copyright: amarosy / 123RF Stock Photo

  • Alexei Domorev

    Hi Simon!

    Thank you for your article.

    I am familiar with “zero-based budgeting”, but unlimited budget model sounds incredible. (What clients do you work with? Please send them our way!)

    Could you please clarify your point #4?

    “In order to set the CPA goal for your brand, it’s important to determine the average lifetime value of your customer, multiplied by the average order value to develop a break-even point.”

    Customer lifetime value (usually denoted as CLV, not LTV) is measured in $. Average order value is measured in $ too. If you multiply $*$, you get $^2. I feel a bit lost here. 🙂

    Cheers,

    Alexei

    • Simon Gellibrand

      thanks Alexei,

      My thinking is around average order value (say $20 monthly recurring) multiplied by customer retention rate/average order value length (say 14 months) equals (gross) customer lifetime value of $280 which will then provide a CPA goal guide for an acquisition campaign.

      The brand in question would need to subtract the cost of acquisition to gain their final net CLV.

      cheers,
      Simon

      • Alexei Domorev

        Thanks Simon for clarifying it! Now it makes sense.