Investment decisions
What I check before increasing a marketing budget.
A channel can look efficient at its current budget and still be a poor place to put the next dollar. The decision starts with what the business needs to earn from that additional investment.
3 min read · Interactive exampleBefore recommending more spend, I want to know what is limiting growth. It could be reach. It could also be an offer that is hard to understand, a landing page that loses people, or a sales team that cannot follow up quickly enough. More traffic changes the size of those problems.
Start with the economics.
A platform return does not tell me what the business keeps. I look at the costs behind the sale, the quality of the customer, and the assumptions about repeat purchases. If the plan depends on future customer value, I want to know how much of that value is observed and how much is a forecast.
Separate the average from the next increment.
Illustrative example, not a company result
What the average leaves out.
Compare two spend levels and the new customers associated with each. Change the example to see what the additional customers cost.
- Average before
- $100.00
- Average after
- $120.00
- Per additional customer
- $200.00
In this example, $5,000 more spend is associated with 25 additional customers. The average cost moves from $100 to $120, while each additional customer costs $200.
The arithmetic alone does not establish what advertising caused. Check comparable periods, customer quality, contribution margin, and payback before changing spend.
Make the next step a decision we can evaluate.
I would set a bounded increase, agree on the business measure, and define what would make us continue, adjust, or stop. The observation period needs to fit the buying cycle. A long sales process will not produce a useful answer overnight.
There also needs to be someone responsible for acting on the result. A test with no decision attached is just more activity.
My question is simple: what evidence would make the next investment a good decision?
