April 17, 2023

Payback Window

When focusing on Marketing Budget Experiments, there is a tension that must be resolved.

The tension? How much time needs to pass to optimize profit? And ... when is profit optimized?

These are not easy questions to answer.

The company below spends $100,000 acquiring customers ... then the newly acquired customers pay the brand back. In the Marketing Budget Experiment below, we simulate what happens at different customer acquisition investment levels. Each row represents cumulative profit after "x" years. Click on the image - the numbers are tiny but are important.



If you want acquisition efforts to be optimized? Spend $25,000.

If you want your payback window (in this example - your mileage will vary) to be optimized after one year?  Spend $50,000.

If you want your payback window to be optimized after two years? Spend $75,000.

If you want your payback window to be optimized after five years? Spend $125,000.

If you want your payback window to be optimized after ten years? Spend $175,000.

None of the scenarios require the brand to spend what the brand is currently spending ... $100,000.

All of the scenarios give you something to think about. Everybody will have an "opinion" about what should be done, about what is "right". Not many people will agree.

Be honest with yourself. What decision would you make here? Explain your decision.

Do you have an application that performs this level of insight for you?




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