Marketing Reviews in General

It’s another marketing review and every channel owner is presenting what is going on with their primary KPIs. All is fine as long as every channel has enough budget to run their show, people hardly care about the burden of the other. But all of this changes, when your budget is reduced but targets remain more or less the same. Especially in times of ‘recession’, the leadership-ask changes from ‘growth at all costs’ to ‘efficient growth’! Usually, this leads to strict scrutiny of every channel (by each other and the group as a whole), and the question you end up asking yourself as a growth head is, “Whether to double down on Performance Marketing OR give another bit of discount and boost the transactions this month OR continue to keep sending those Emails which give you a massive reach” and so on.

4 Types of Marketing Budgets Explained

(P.S. This will be a long post. So breaking it into 5 parts)

1. Acquisition Budget
2. Discounting Budget
3. Activation / Engagement Budget
4. Brand Budget
5. Frameworks for deciding the mix of the above spends

Broadly, the entire marketing budget or spends can be classified into four buckets (1 – 4 above). Let’s look at each of them in further detail

Acquisition Budget

The primary KPI of the Acquisition budget is? you guessed it right – “Acquisition“. The key theme here is that the budget spent on this dimension should move the primary KPI of acquiring new users on a platform. And not waste the precious budget on any of the platform’s existing users. Let’s understand this with an example.

Say you are running an incentive-based Referral Program where you pay 100 bucks for every new user coming via the program.

What are your CAC and Cost when you acquire say 10 users?

CAC = 100, and Cost = 10×100 = 1000

Now say, 2 out of 10 users who are referred (by your referrers) are already using your platform under a different email/phone number (this is not at all uncommon, as people who are in similar demographics use similar products). Your referral program ends up paying for the whole 10 users (i.e including the 2 existing users) while in reality, you acquired only 8 new users

therefore actual CAC = 1000/8 = 125 bucks while the Cost remains 1000 bucks.

This is the most fundamental thing to understand in acquisition.

Key KPIs of Acquisition Budget

1. Revenue from new users
2. Count of New Users
3. Cost per New User or CAC
4. Spend on new user campaigns (includes the cost to bring the user to the platform & the cost to make the user transact i.e. discounts/coupon spends)
5. The incremental cost of acquisition

What to watch out for

1. Spillover of acquisition budget to bring the existing user back to the platform
2. Improper targeting, which increases the chances of 1
3. Improper CAC or Revenue reporting which includes
   1. existing users in the acquired base
   2. not accounting for the discount spends, on the new user transactions

Example Channels that are primarily geared to the Acquisition Dimension

1. Referral Marketing
2. Performance Marketing Channels
   1. Google Ads
   2. Facebook / Meta Ads
   3. Affiliate Ads
   4. Programmatic ads (e.g. DV360)
3. SEO Marketing (Yes SEO is not Free, and hence keeping it in the Marketing budget is a must)
4. Paid Promotions such as Influencer Endorsements focused on Tryouts.
5. Affiliate Marketing
6. Third-Party Integrations or Partnerships

What does typical acquisition channels’ performance look like in the real world?

The performance is sub-optimal in terms of both scale and CAC as the channel begins. With improvement in channel understanding, know-how, and conversion, the scale and CAC start to improve, this is usually marked by increasing the spends on this channel. Post this the channel is expanded until it hits the plateau and there are no further users to be acquired. Typical examples when you are operating in this zone,

1. your google ads are running at 90% plus impression share
2. your meta/facebook frequency of ads shown to the audience is touching 5 per day.
3. your referrals per referrer, just won’t increase, even if you double the incentive offered to the referrers

Once you enter this zone, the channel won’t be able to scale the traditional way of increasing the spends. In fact, even with incremental spending, the total number of new users stays more or less the same. It’s best to cap the budget until you figure out how to scale this particular channel. Alternatively, you should invest in another channel that can give better CAC at this point and give you an additional scale.

Comparison across Channels in terms of Acquisition Performance

No matter what is the category, typically a well-run referral program will always give better CAC than traditional marketing channels. For more on Referral Program Dos and Donts – Check out my blog. The only challenge with referral programs is scale, if you can crack that, then there is no limit to how fast you can grow.

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Next lets look at the second category of the Marketing Budget – Discounting Budget. Coming Soon…

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