How to set your media budget? Should you target growth, revenue, profit or ROAS.
Determining what your annual media budget should be is one of the most critical decisions for any marketing team. Yet, too many teams marketing teams or channel budget owners accept a set budget.
That set budget could be set by finance or operations teams. But when you have external teams setting your budget this either means missing out on new customer growth or spending inefficiently.
So here are 4 ways that we at Linea help brands to set budgets based on their business goal:
- Maximise profit
- Maximise revenue
- Hit a growth target
- Target ROAS/CPA
1. Maximise Profit
Best for scaled business
This is the ultimate point of diminishing returns. Set your budget at the point at which the next £1 spent returns you less than £1 after all costs (that’s your marginal ROI). This is the most financially disciplined goal and means profitable growth. You must have an accurate, incremental measurement model to find this exact point.
2. Maximise Revenue
Best for growing business or if LTV is hard to measure
This is the same as above but not inclusive of costs. You've got more budget to spend and would use the budget setting process because you have external funding or high growth targets. The danger here is that by chasing the highest revenue number, you risk spending past the point of maximum profit and into inefficient territory.
3. Growth Target (Customer/Volume)
Best if you have specific goals to hit or want to focus on volume
Stepping away from an unconstrained budget. You start with the customer volume you need to acquire and work backwards. This is common in high-growth phases, but it requires a forecast to show if your target is even achievable with the current market conditions and media mix.
4. ROAS/CPA Target
Best if you have specific efficiency goals
This is how you ensure that even as you scale spend, you maintain a minimum efficiency level. This requires an always-on MMM to provide an ongoing, accurate view of incremental ROAS, rather than relying on last-click data, which often undervalues long-term channels.
What strategy is best to set media budget at my organisation?
Typically it depends what stage your business is at.
In a growth phase, you should be using your marketing budget to hit your Growth Target. Once you hit scale, you should pivot to Maximising Profit.
The only way to move from constrained budgets to goal-based investing is to have a measurement solution that runs these scenarios for you: quickly and accurately.
That's what the Linea Scenario Tool is built for. As your goal changes the platform allows you to hit your targets by evolving your marketing strategy. Take a free trial today.