June 28, 2023

After You Cut The Budget ...

So this brand cuts the paid social budget by 10% for one year ... sees that profit is optimized, then says they'll cut it by 10% for each year thereafter. What happens to profit?

You make more profit in year one ... $276,971.

You make more profit in year two ... $177,298.

You make more profit in year three ... $74,101.

You make LESS profit in year four ... $16,253.

You make less profit in year five ... $98,671.

The decision looks good over time ... you're up $413,446 over time. 

But the brand begins to lose money by year four.

So cutting the budget consistently seems to work ... for awhile.

Then you'd have to cut the budget further to make the numbers work.

Here, the budget is cut by an additional 10% in years 4-5 to make the p&l work.

The business keeps getting more profitable.

The top-line keeps shrinking.

Paid Social marketing spend keeps shrinking.

This is the thing about marketing. You can find ways to optimize your investment. And then to keep investing it you generally keep cutting ... and you keep getting smaller ... and eventually somebody is going to say "enough".

Business is so much more interesting than we give business credit for being. It's so darn much fun to learn how all this stuff works out.

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