How to decide the budget for Performance marketing?

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Read time: 3.5 minutes

One of the most difficult questions to answer for a founder is- What is the right budget they should spend on ads?

And the worst way to think of an answer to this question is that I can spend any amount of money on ads as long as I make profits.

Especially if yours is a new brand.

Digital is still one of the best and most economical mediums to build a business if one has patience and an open mind to it.

Unless you have pressure from an investor to grow fast, you should build a fundamentally strong business which takes time and patience and is energy-intensive work.

What you will read today is considering that you are not under the pressure of immediate returns from your investor.

If you have an investor on board who is constantly bugging you to scale fast, you can skip reading today’s newsletter.

But if you want to build a business that is fundamentally strong, a business that is not dependent on just Google or just Facebook ads a business that creates a tribe of people who believe in your product and the reasoning behind it, then this newsletter is for you.

How to decide the budget for performance marketing?

Before you decide the money you wish to spend on ads and thereafter performance marketing, you need to have below in place about your brand:

1. Brand identity along with the brand’s personality, tone of voice, guidelines on images, videos, social media etc.

2. Product pitch, Why should people care about you, What problem is your product solving in their lives

3. Scalable social content- I always say this, it is never a question of quantity vs quality of posts on social if you are a new brand.

High-quality content drives engagement for you, you will not know what this ‘high-quality content’ is till you have enough content out there.

You should keep some budget to quickly scale the content that is working well with the help of social ‘boosting’.

4. Customer onboarding, I cannot stress this enough, any onboarding you are doing of the customer needs to be transparent, and seamless and should be focussed towards building trust.

You should only capture user data that is necessary and tell users that you will reach out to them with bespoke offers.

In the era of increased focus on user privacy, transparency is critical.

Be sure that you are not giving out too much information here, only what is necessary and something that your audience should know about (this will also help you to abide by the recent Data protection bill that was passed in Rajya Sabha)

5. Journey for repeat purchases: I strongly believe in the fact that before you start driving transactions for your business, you should have the basic journey in place to drive automated repeat transactions.

It could be something as basic as sending an email or Whatsapp message a few days post first purchase introducing a new category or product.

But if you kick off your business focusing on first acquisition only, you haven’t closed the loop with your customers. Remember, for most businesses, your and your customer’s success is not when someone buys from you for the first time, it is when someone buys from you the second time.

There are exceptions to this of course, but broadly speaking it is true.

In fact, a lot many businesses that run on digital don’t even make a profit on the first purchase.

Only when you have the above 5 things in place do you need to apply your mind to the strategy you need to have in place towards your performance marketing budget.

I am going to explain this for businesses at 2 stages:

1st, if you are absolutely new brand, you haven’t really reached the stage of getting consistent sales and

2nd Businesses that have gone from 0 to 1 but now want to go from 1 to 10, which means they are probably at break even or have just started making marginal profits.

1. For a new brand: For businesses at this stage, the calculation is fairly straightforward.

Ask yourself this question: What is the amount of money that I can spend on ads without the hope of getting the same amount of money back to my business?

Remember, we are talking about digital platforms like Google and Facebook here, and these platforms are machines and machine needs data/intelligence to perform.

So when you are just getting started, you are making an investment to make your ad account mature and smart.

The more data your ad account gets, the better it will perform.

The other lever to these ad platforms is creative.

You have to maintain a healthy frequency of providing fresh creatives to these machines.

If you are thinking that you will run dynamic ads where Facebook and Google will fetch products automatically from your website or feed, you are in for a much longer and more expensive optimisation cycle.

In all likelihood, if you are a new brand, your monthly expenses will be consumed in fixing the first 5 things I mentioned above and if that is the case, do not stress.

It is absolutely normal.

You anyway have to figure out those 5 things before you start running ads is what I recommend.

2. For brands that have achieved break even or are closer to achieving it: Break-even refers to break even on ads specifically (1x RoAS). For you, you have been already investing in ads.

So you have some idea of what approach works for you both in terms of creative communication and in terms of audience targeting.

For you, it is important that you start setting up monthly targets for yourself and your media agency.

Set a target of 1.5, 2, 2.5 or more RoAS.

Do not be in a hurry to jump from 1.5 RoAS to 3 RoAS in under a month.

The jump is usually not sustainable.

Businesses have different levers at different stages.

You have to plan monthly and optimise weekly.

This is also the stage where 100% of your orders cannot come from ads.

Marketing automation, social organic or incremental sales from SEO should also start kicking in.

If that’s not happening, rethink your strategy.

If you have achieved break-even (on ads) and you are still 100% dependent on ads, you are one algorithm or policy update away from losing all your sales- Big Red Flag.

I often see businesses getting caught in the vicious cycle of seeing ad performance every day and pulling their agencies on performance approach, audience targeting etc.

It is important to get the approach and targeting right, however what are you doing to reduce your dependency on ads? it’s a question every business has to answer and progress towards a diversified customer acquisition approach.

If it means that you should probably follow an omnichannel approach in order to survive- Do it.

Diversify your channel strategy, diversify your audience strategy, diversify your creative strategy and if you can, diversify your business to build sustainability.

That’s it for today, folks!

Hope this gives you clarity on how should you approach your budget strategy for performance marketing.

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Have an awesome Sunday ahead.

Cheers,

Apurv

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