If you’re a professional dealing with paid campaigns, you’ve probably heard these questions countless times. If you’re on the other side of the barricade, meaning you’re outsourcing campaigns for your business, you probably end up wanting a specific answer. Not this time. In this article, I’m not going to answer the question of how to budget, but I will try to answer the question of how definitely NOT to do it.
I invite you to a case study entitled “Campaigns are going great, but the client told me to screw the budget down to a stiff level and now tears are streaming down my cheek”.
An inflexible budget is the most painful shot in the knee you can serve yourself, because:
- we can burn through it spectacularly,
- or we cut off the possibility of scaling, in other words: we could spend more and earn more, but we can’t, because as an advertising agency our hands are tied.
Today we will look at option no. 2.
The lack of a flexible e-commerce marketing budget and its downsides.
Examples with real data works best for your imagination.
A client from the fashion industry with an initial budget of €5,000 per month.
Figures from May 1-10:
In the meantime, we suggested that the client increase the budget significantly. Over the next week, the daily budget increased to around 500 PLN.
With such a large increase in the daily budget, a natural change in campaign performance is a decrease in ROAS (a key indicator for campaign performance and potential analysis).
After the budget increase, ROAS remained at the same high level:
Figures from 10-15 May:
At this point we already know that the campaign is going great and we have a very wide scope for scaling up.
Figures from 10-22 May
A word of explanation:
ROAS – or Return On Ad Spend for short – tells us how much return we get from our advertising spend. In simplest terms: how much we earn for every penny we spend. If the ROAS is 13.35 (or 1335%) on average, this means that our return on spend is £13.35.
We calculate ROAS by dividing the conversion value by the spend. In this case, for the data from 1-22 May this is:
value of conversions generated: PLN 126,408.77
amount spent: PLN 8 909.63
Back to the case study:
From 23.05 we were instructed to rigidly reduce the daily budget to max. PLN 200.
During this time, ROAS increased to 14.83
Figures from 23-30 May:
So we have a situation where, in the sales peak, instead of cranking out maximum sales we had to reduce the budget significantly.
Conclusions
Budget planning requires a broad view, we need to plan on an annual basis. Since we know that the sales peak for the industry occurs from April to May and sales drop off in autumn, let’s assume a larger budget for spring and a smaller budget for autumn/winter.
Questions that can make a good decision are:
- When is my product most needed by consumers? A swimming costume manufacturer will answer this question differently, a ski manufacturer differently and a company selling furniture differently.
- At what times of the year do I have sales peaks?
- Do I plan Black Friday or end-of-year sales?
- Is my product suitable as a gift for special occasions, such as Mother’s Day or Communion?
Establish KPIs – Key Performance Indicators. If the specialist who works on your campaigns knows what results they need to achieve, it will be easier to manage budgets and scale sales.
Referring to the case above: if the KPI was set as ROAS = 1000%, campaigns would be safely scaled until the ROAS dropped to 10.
Questions that can help with this are:
- What level of sales will be good for me in a month?
- What amount of orders/value of orders do I need to generate e.g. ads on FB to consider campaigns effective?
Trust your specialist – we don’t work on hunches, we primarily work on numbers. Maths, although it can sometimes be magical, is unlikely to lie 🙂
If we see potential for scaling we will certainly provide the data to do so, but if we are at a disadvantage and the budget may be burned through – we will say so. Burning through the budget has never worked out well for anyone yet.
And you can read about how to analyse data better and faster from Kuba’s article “What is the Meta Ads custom indicator and how to use it to optimise ad campaigns“.
