Hi! My name is Leo Celis, and I write about Ad Tech.

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How to think about budget (in direct marketing) (10/14/2018)

“My annual digital budget is 5 million.” This is the same to say “I can throw away 5 million this year.” Why? Because if your campaign is working, you are getting all your money back, which means you can spend whatever amount you want.

A better way to think about budget is: how much money can I spend until I get one sale? This question is not easy to answer if you are launching a new product. It’s not easy if its the first time advertising in a channel.

It’s not easy because “budget” is not the right word here. There is risk involved, the risk of spending money and not getting any result, not getting your money back. The right word is “investing.” You are investing money, with the risk of losing it.

If you are selling a virtual reality headset for $399.99, how much can you afford to spend to get one sale? Is it $100? How much money can you risk this week? Is it $1,000?

Once you have these numbers (before you launch your campaign), you can start projecting your target costs per funnel step:

– How many user registrations do I need before I get a sale?
– How many clicks do I need before I get a registration?
– How many impressions do I need to get a click?

“I need 10 user registrations to get 1 sale.” Therefore, “my target user registration cost is $10.” After you spend $100 in the campaign, you should get 10 users, and 1 sale.

Of course, this doesn’t mean it will turn out this way, but you will have a compass to optimize your campaigns against with. You are not throwing $1,000 in a week hoping to get results. You are spending $1,000 next week, to get 10 sales.

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