June 20, 2023

Payback Window

When introducing the concept of Marketing Budget Experiments (click here for pricing details), I shared thoughts on payback windows.

If you want to optimize payback quickly, you cannot invest as much.

If you want to optimize profit long-term, you usually have to invest much more than you think is appropriate.

Remember those fun days ... twenty years ago ... when the pundits said Amazon would never make money? Instead of generating profit, they reinvested everything they had ... they avoided paying taxes in the process ... and today, look at where they are?

There is a lot of talk about contraction these days. The COVID-bump days are years in the rear-view mirror, the bump is pretty much unwound right now, and increased costs are causing people to think about contraction. Contraction, by definition, shortens the payback window, optimizing today in exchange for a reduced tomorrow.

More important, the shorter your payback window, the more you sub-optimize the future. Trying to nail things down this year means subsequent years will be worse.

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