Forget Holiday, It’s Budget Season!
In all of my schooling, I only ever failed one class: Intro to Mathematics.
As I write that sentence, a wave of embarrassment washes over me. Failing Math 101 is pretty hard to do (I mean it was an 8 a.m. class my freshman year in college, so perhaps that had something to do with it, but I digress). Yes, it was disappointing to my parents, but was it surprising? No. I have never been good with numbers.
My brain simply does not work that way and never has. I am a right-brained, creative type that prefers coming up with the ideas rather than figuring out the economics behind them.
That is why I was a journalism major and why I got into marketing in the first place: a complete avoidance of numbers. Just come up with creative ways of saying things, throw in some great photography, and voila! Instant career (and campaign) success.
Yet here I sit at 9 p.m. straining my brain trying to figure out the effects on FY13 gross and net revenue, customer counts, and ultimately EBITDA if I double my search spend in South Korea next year.
Welcome to the hell I call Budget Season. While I may never be able to create an long-range plan that accounts for the expected exchange rate of dollars to Yen and the fluctuating cost of cotton, there are four key steps that have helped me build budgets in-line with the business, in line with performance trends of each channel, and that deliver on what they say they will.
Monthly Timeframes Are Terrible For Budgeting
This may sound a bit silly, but months are more or less arbitrary groupings for days, and thus, are absolutely terrible for budgeting. For example, is November 1st just like November 15th? How about November 30th?
While we will never be able to throw budgeting by month out the window, what we can do is make sure our campaigns aren’t run on a monthly schedule. For example, if we have $31 to spend in October and $60 to spend in November, once we hit November 1st, we shouldn’t just double what we are spending per day.
Instead, in late October, slowly begin raising your spend by a few percentage points per day. Then, continue that trend day over day over day throughout the month, or until you hit a day/time that is abnormally different (e.g., Thanksgiving day is abnormally low, and Cyber Monday is abnormally high).
This gives you a more controlled, predictable spend plan that’s in-line with seasonality, and eliminates wild swings that can happen as we hit a month that has a sharp increase in budgeted spend.
Comps Lie, Trends Don’t
Far too often, people budget to achieve a comp and throw trending out the window. But the truth is, comps lie and trends don’t. Year-over-year comps are simply a comparison to the same time period a year before – which is just as much a reflection of what you did last year as it is what you want to do this year.
For example, in order for a comp to be truly helpful, you would need to normalize all special offers, tactics, CPCs, and so on in order to make it a “true” comp (and if you are like me, I have a hard time remembering the special offers I ran last week, let alone a few months ago).
So, instead of budgeting with a comp in mind, budget based on the trend of each of your channels month-to-month for the past 12 to 18 months. This will give you a better indicator of how each channel is performing and how it will perform in the future. Once you have established the trend, you can then see if it meets your goals, and if not, you can then adjust your tactics to try to meet your goal.
Not Everything Is Predictable
The blessing and the curse of digital marketing is that it is so trackable – which leads to the fallacy that everything is predictable. how me someone who thinks they predicted everything and I will show you someone that has a flawed media plan.
No one could have predicted when/how Google Shopping would have switched from a free to a pay method, the effects of the Panda update, changes in the economy, changes in tax laws on Internet purchases… you get the point.
Instead of trying to predict everything and inevitably missing a few things, predict what you can, then build flexibility into your plan so you can actively adjust your plans when things change.
The two easiest ways to build flexibility into a media plan are to reforecast at least each month (using actuals and trends to adjust future months) and have a small percentage of your budget unallocated (I aim for 5% – 10%). By having this slush fund, you always have budget to test new opportunities that pop up and it gives you the ability to immediately add funds to channels that are overproducing – which helps ensure you aren’t leaving money on the table.
Don’t Underestimate Your Gut
Once you have a media plan that takes into account daily seasonality and trends by channel, and once you’ve accepted the fact that you can’t predict everything, don’t be afraid to gut-check your answers. If you are like me, your gut is not only made up of beer, wings, and other assorted junk food, but it is also made up of all your experience, all your mistakes, and all your successes.
So, while your gut feelings should never drive your predictions, they can be a good way to look at things from a high level and make sure everything makes sense.
At the end of the day, there is no way to get around using some sort of math to build your budgets. But, by simply changing your approach from a math-centric, finance-driven model to a model based on experience and trends (with some basic math thrown on top), you can make the process easier to complete and sometimes even a bit more accurate than what the economics-degree-laden, math whizzes in finance can come up with.
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