How to create an optimized budget? – Data Science for CMOs episode 6
Many marketers miss great opportunities when optimizing their budget. Christopher Engman guides us through some tactics to have in mind when the budget is to be adjusted.
Once or twice per year, on top of marketing mix modeling, you want to do what’s called an optimized budget. You want to look at what exact numbers should I put on each type of marketing activity. When you do that you look at two constraints normally. First of all what is the maximum budget I can spend? That’s one constraint. The other constraint is: what is the minimum per ROI or multiplier needed per activity? Some companies use five, you need five times the money. So one dollar in gives five dollars back. That’s the minimum threshold you need for a marketing campaign or marketing type to be qualified. On top of that you can run, you can say “ok what if we had 20% more marketing budget?”. How would that affect sales and what would the optimal mix be when having 20% more money?
When creating the optimized budget you’re using two types of variables. First of all you use financial data like what is our sales numbers per month, what’s our profit numbers per month, how do we spend our money on marketing, on retargeting, trade shows, events, TV, radio etc even down to specific TV channels or webinars, email, SEM, whatever we do. So how much money do we spend month by month on those. The second type of data is volumetric data which could be site visits and your NPS score, your brand awareness level, followers on LinkedIn, followers on Facebook, Instagram, Twitter whatever you’re using bounce rates time spent on the site. So we combine when doing the optimized but we combine these two data types so the financial data and the volumetric data, they both go into the regression modeling to produce the optimized budget.