In the year 2000, 11 startups spent millions of dollars to run small 30 second Super Bowl ads. Within 12 months, 8 of the 11 companies had either declared bankruptcy or had been sold off to recuperate losses. Not enough planning was done to mitigate risk. This was also the period of the dot-com bubble burst, where a lot of valuations dropped and companies went bust.
A good product needs a large audience adoption for it to become successful. Budget planning is the art of optimizing and prioritizing intricately in order to achieve product goals. A big budget does not make a big product unless you plan it right. You don’t want to be like one of the startups that put all their money on Super Bowl ads only to shut shop later due to lack of funds. How then, should you approach marketing budgets and plan for success?
- Assign a certain percentage of budget towards branding. Branding is nothing but positioning on how you want to market to perceive your brand.
- You must have an acquisition plan in place and your maximum budget should be aligned towards user acquisition. Every business would always need new customers.
- You should always keep in mind that your acquisition cost (CAC) is not more than the LTV. Always keep a check on that and review it on a weekly or fortnightly basis if you are acquiring customers through online sources.
- A certain part of your budget should be parked for retention. This would mean running loyalty programs, passing benefits or discounts to existing customers. Pretty much tactical in nature.
- Expansion or looking at new horizons should be kept in mind when creating a marketing strategy. If you look at opening new markets for your product, in the long run, you should have a minimum percentage (%) allocated for that. And when you reach new market stage, the above cycle repeats.
- Acquisition should be divided into long term & short term. You will have all types of customers using your product i.e. low value and high value. Your product should be willing to adapt both.
- For short LTV customers, your spends should be tactical i.e. offers etc.
- For long LTV customers, your spends should be more strategic in nature, like alliance with a larger community, corporate plans for organizations etc.
As a product team, we need to ensure proper risk planning. Instead of putting all our eggs in one basket, it’s better to diversify and validate acquisition channels to maximize ROI and have control over expenses, ROI and product growth.