June 26, 2023

Not Looking At It The Right Way

Here's a brand that is paying too much for Paid Social at this time ... or so it seems.

In this Marketing Budget Experiment, we increase Paid Social spend by 10% for the next year. We spend $709,000, and we don't get a whole lot in return.

  • Demand increases by $1.2 million.
  • Profit decreases by $300,000.
  • Incremental ROAS?  About 1.69. Yikes!

Every instinct you have says DON'T DO THIS!

But a funny thing happens in the future.

This brand converts 3,836 existing customers to an incremental purchase. It generates an additional 2,227 new/reactivated customers. Those customers begin doing their job ... they start paying you back.
  • $94,000 profit in the second year.
  • $100,000 profit in the third year.
  • $90,000 profit in the fourth year.
  • $84,000 profit in the fifth year.
  • A net gain of $67,000 profit across five years.

In other words, this is a good decision if you are trying to protect the long-term health of your brand.

In a digital world, with digital analytics and industry-standardized metrics like ROAS, we optimize in the short-term. We generally don't care about the future ... as an Executive once told me, "there's not a great chance I'll be there for the future anyway so why would I optimize for it?"

We optimize for it because it is the right thing to do. We're not looking at the problem the right way.

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