May 16, 2023

Should I Cut Back In June?

Yesterday we talked about the poor Social Media Marketing Manager who wanted to double the June Paid Social budget. Our Marketing Budget Experiment illustrated that this was a bad idea.

This is one of those moments where I might feel spiteful, wanting to cut the budget. If increasing spend was that unprofitable, maybe decreasing spend is a good idea?

Here was our base case.

And here is the outcome of the Experiment after cutting the June Paid Social budget in half.

The results are kind of interesting.

  • Demand drops by $380,000 this year.
  • Demand drops by $184,000 next year.
  • Demand drops by $173,000 two years from now.
  • Demand drops by $152,000 three years from now.
  • Demand drops by $136,000 four years from now.
  • You lose $1,024,000 of demand over five years.

In other words, the decision you make today costs you business every year going forward (in the case of this brand).

How about profitability?
  • Profit improves by $169,000 this year.
  • Profit is hurt by $32,000 next year.
  • Profit is hurt by $34,000 two years from now.
  • Profit is hurt by $30,000 three years from now.
  • Profit is hurt by $28,000 four years from now.
  • You increase profit by $45,000 over five years.

Now you're left with a dilly of a pickle, aren't you? Technically, it makes sense over the next five years to cut back on Paid Social in June, but not by much. If your goal is to be more profitable this year, absolutely, cut the budget. But you pay for your decision next year because you'll give up profit next year and each year thereafter.

We're making these short-term / long-term tradeoffs every single day, and we have no visibility into the long-term aspect of those tradeoffs. That's a problem, isn't it?

We'll evaluate a different tradeoff tomorrow ... maybe we can optimize our way into a better marketing strategy???

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