Every year, digital advertising budgets are not only becoming more important to brands, but also growing exponentially larger. The digital data firm eMarketer predicts the average firm in 2020 will spend 50.1% of its ad spend on digital platforms.
GWL Advertising clients are no exception to this trend: More and more are shifting from traditional advertising to digital.
Years of experience building digital advertising budgets have taught me that businesses tend to allocate their digital budgets based on channel.
Say you’re invited to a budget meeting and the CFO explains that the company has $20,000 per quarter to spend on digital advertising. He or she asks you and other attendees how to allocate that budget. More often than not, you'll watch the CMO stand up and propose a break-out that looks like this:
Recently, at GWL, we flipped the budget upside down. Instead of using channels as our primary dimension for budget allocation, we decided to prioritize the KPI (key performance indicator) we hoped to achieve through advertising. At first glance, this doesn't seem like a bad approach to budgeting. But is it the best solution? No. Here’s why:
If a client's KPIs are to 1) Capture Leads and 2) Generate Website Visitors, we allocate budget based on these KPIs.
Through a little preparation and a review of our CRM sales data, we see that, at any given time, 35% of our market is in the last stages of buying (Consideration and Decision). In other words, 35% of our audience is ripe for lead generation.
But the rest are still doing research and evaluations. We need to increase brand exposure by driving them to our website where they can watch videos, browse products, and read reviews.
With this in mind, a KPI-driven budget looks like this:
From there, we can select the channels we believe will help us achieve those goals. We then break out our KPI budget by channel, like this:
The purpose behind this is to shift our focus from a channel-driven advertising strategy to one that supports and achieves our client’s unique objectives.
There are three specific reasons why this shift is important for your business's advertising budget.
1. You become less dependent on channels.
Sure, right now, digital channels are all the rage. But Facebook, Instagram, YouTube, and even Google Ads may lose their strength over time to deliver your brand's goods to new customers as new channels come online.
The problem with this way of doing things is that if your budget is designed around the advertising channel, your job as an advertiser is to prove the channel's worth. Is that the job you want? Do you really want to be an apologist for Facebook?
Instead, a KPI-driven budget allows you to advocate for the KPI. Are you generating qualified leads? Are you driving new visitors to your website? Are you increasing awareness about your brand? Those should be the goals your advertising dollars are dedicated to achieve.
2. You have more freedom to be flexible.
Budgets have to be approved well in advance before dollars can be spent. And for many companies, those budgets, once approved, are rigid. After you commit a percentage of the budget to Facebook, it's hard to move that money elsewhere. (Especially if you have dedicated Facebook media buyers whose roles were created thanks to this flawed channel-driven strategy in the first place.)
But if your budget is allocated by goals, with channels as a sub-segment, you now have the freedom and flexibility to shift money around. If Facebook isn't generating leads but it is generating site visits, you can shift your "KPI: Lead Generation" budget to a channel or channels that are working without affecting that KPI's total budget.
3. You can track return on investment (ROI) more effectively.
Money is fungible. A dollar spent on a Kit-Kat bar is no different than a dollar spent on a bespoke suit. A dollar is a dollar.
The same goes for channel-driven advertising strategies--CEOs see your advertising dollars as fungible too. You may run two campaigns on Facebook: one to boost your "Ad Recall Rate" and another to capture leads. At the end of the month, your CEO is going to look at that money as one lump sum and wonder why it's costing so much to generate leads and ignore that huge boost to your Ad Recall Rate.
Why do they do this to us? Because your budget is segmented by channel instead of KPI.
If, on the other hand, you divide your budget by KPI, at the end of the quarter you can report the $1,000 spent on increasing Ad Recall separately from the $4,000 spent on generating leads.
What's more, you can also demonstrate the impact of spending money on Ad Recall Rate on generating leads. How? Because you segmented your budget by KPI, and you can now test if that money is impacting leads through market segmentation, A/B testing, or other means.
When you allocate your budget by KPI on the front end, it becomes easier to explain your results at the end of campaigns. You're not trying to explain why a "Facebook budget" was necessary; instead, you're able to explain how Facebook and other channels helped to achieve your business's goal.