We talk to a lot of people here at Credo who are looking to start marketing and trying to determine what to spend. I have a framework for that.
That part is, in perspective, pretty easy. But what is a lot harder is knowing when to scale your marketing spend.
In this article I am going to unpack how I think through when to increase spend on a certain channel and when to keep it the same or even cut it out completely. As we go into the new year, it’s good to think through the “when to scale” conundrum to set yourself up for success moving forward.
Why grow your marketing spend
Before we get into when you should grow or think about growing your marketing spend, let’s cover why you might want to do so.
When you look at marketing as an investment and not an expense, the spend you put towards a channel now is expected to return results to you over time. Sometimes your time horizon is short, but sometimes it can be long. Marketing spend should be put towards different channels based on how quickly you need to see a return. Some channels are quicker to start working, like referrals or paid acquisition, but others like SEO or content marketing are longer term investments.
If a channel is working, then growing your marketing spend is the way to see improved results from that channel. But, the level of investment you make and the time over which you make that investment has the largest impact on the overall success of and return on that investment.
When you think about investing money in the stock market, it stands to reason that the more money you have invested the more you will make as a return. If you have $10,000 invested and make 6% on that, you’ll have $10,600 after one year. If you have $1,000,000 invested and make 6%, you’ll have $1,060,000. Six hundred vs 60,000.
It’s the same with your marketing spend. When you track and know your metrics down to a channel level, spending more doesn’t have to be an expense. If your tracking tells you it’s profitable and there’s share of voice to be had, reason says that investing more is a good idea.
But spending more on a channel doesn’t just have to be to accelerate results (though that is one of the main reasons). You can also grow your marketing spend to:
- Learn quickly in a new channel
- Buy back your time
- Show traction to potential investors
- And yes, accelerate results.
Grow your spend when the channel is not established
One of the BIGGEST mistakes I see companies make is underinvesting in marketing. Everyone is afraid of overinvesting and “wasting” money, but too few are afraid of spending too little and thus never seeing the results they want to see.
In short, too many companies are playing to not lose rather than playing to win.
Just recently we had a client looking to invest in marketing because they have certain goals to hit by end of next year, and they’re stressed about hitting them.
After talking through these goals and establishing numbers, I told them that they should invest at least $5,000 per month into advertising. They then said they wanted to start smaller at about $2,000 per month “and then scale up.”
This is a very common thing that we hear at Credo, and it’s a bad idea.
Quite simply, approaching marketing this way a bad idea because you will need a lot more time to learn if a channel works than if you had invested more up front to learn faster. If you should spend $5,000 and you only spend $2,000, it will take you at least twice as long to learn.
Why do that if you have the funds available? If you don’t then you need to start smaller to be sure, but if you have the funds properly earmarked then there is no reason to slowroll it.
If you do start small and scale up, you’re acting from a place of fear. It seems prudent, but you’re wasting time instead of money. If you spend more, you’re not guaranteed to waste money. If you spend less, you are guaranteed to waste time.
Grow your spend when the channel is profitable
As mentioned in the first section above, if a channel is profitable for you then growing your spend in that channel is the single best way to expedite results. There are a lot of small things you can test to improve your results by a small bit with each change, but those changes are made most effectively once your spend is already at scale. Even then, scaling spend and running conversion tests are best done in tandem.
As you scale your spend, make sure to track your results for that specific channel to ensure results stay within profitable bounds (or whatever your current goal is).
When scaling spend on a channel, I recommend looking at results at the following cadence:
- Most important leading metrics (leads / orders / revenue) daily
- Weekly view on spend, traffic, etc
- Monthly view rolling up weekly views
- Quarterly view rolling up monthly views
- Annual view rolling up quarterly views
When you scale spend on some channels, like content, measuring daily will be too much. In that case measure the leading metrics, like traffic, on a weekly and monthly basis to see the trendline over time.
When first scaling ad spend, you probably want to watch spend on a day-to-day basis to make sure ads are delivering while you’re optimizing for maximum results.
Of course, as you scale, don’t forget to know the difference between ROAS and ROI and measure accordingly.
Just because a channel is ROAS positive doesn’t mean it’s ROI positive! Look at both, but mainly make decisions based on overall ROI.
Grow your spend to buy back your time
Sometimes a channel grows and starts to become a large part of your overall acquisition puzzle. This is a good problem to have.
What you will eventually find is that your availability to manage that channel shrinks over time, even though the channel is a large driver of business.
When this happens, it’s time to grow your marketing spend not by investing in more ads or content, but by investing in people who can run these channels for you specifically.
Let’s talk about scale for a minute.
Scale is about people, not revenue and customers
I have changed my point of view on scale over time. I used to think that scale was about growing revenue and customers.
I’ve since come to believe that scale is really about people, and the ability to recruit the right people to run various parts of the business so that you can focus on the right things.
Whether you’re a founder looking to buy back your time so you can focus on something you’re better at (product/sales/whatever) or the marketing person growing into being a leader and growing your team so you can focus, “growing your marketing spend” to hire people is a necessary part of growing a business.
Grow your spend to show traction
Different businesses grow in different ways. Maybe you’re a bootstrapper that is committed to driving growth profitably over time so that you can build the business you love to run and work in.
Other companies grow through investment from others because they understand that if they are able to hit a certain amount of traction they will then be able to unlock more investment and thus more growth and command a higher multiple when they eventually exit the business.
If this is you, then growing your marketing spend is going to be necessary to achieve your end goals. If you’re playing with OPM (other people’s money), then it’s not nearly as necessary to measure all of your metrics and pay close attention to acquisition cost and even ROI or ROAS.
Instead, you need to pick the main metric you care about and then drive that forward. Eventually, what you’ll need from those numbers is simply the ability to drive a narrative based on the numbers you saw.
This isn’t the bootstrapper way, but it is still a viable way to build a company very quickly if you have access to capital to do it.
Are you measuring your actual return on investment?
Finally, as you’re growing your marketing spend you need to make sure you’re clear on your numbers so that you can make the right decisions.
There are all sorts of numbers you could measure, but some of the most important are:
- Acquisition cost
- Number of customers acquired
- Average customer lifetime value
- Acquisition payback period
- Overall marketing spend compared to revenue
I look at marketing spend and return on investment on a monthly and quarterly basis. Weekly numbers are tracked as well so that we can reverse engineer if something goes wrong.
What is important is measuring your return over time. Here is literally how it looks within my business marketing dashboard:
This is a great high level view to let you know if this channel, in my case paid advertising, is getting you a return first on advertising spend and then on investment.
Once you have this, you can break down return to specific channels. In my case, if a channel is wildly ROAS and ROI profitable then I know that I can put more money into it because we’re making that money and then some back quickly. By continuing to track the metrics over time, we can find when more spend is hurting metrics to the point that it’s not profitable, and from there make changes.
If ROAS and ROI take longer to materialize, then I may want to invest in some other areas (such as brand or sales training to shorten sales cycles) before scaling actual spend.
You can only grow your marketing spend when you know your numbers
To recap, if you are committed to running a profitable business then you need to know your metrics before you’re able to responsibly grow your marketing spend. Know your numbers first.
Then, figure out if you grow your spend towards more marketing (content, ads, etc) or towards people to buy back your time so they can put more focus into marketing and you can put your focus elsewhere (whether that’s other parts of the business if you’re a founder or other marketing channels if you’re a marketing leader).
Growing your marketing spend can feel hard to do, and I see a lot of companies who are afraid to do it. But they’re afraid to do it because they don’t know their numbers, and their fear would go away if they knew their numbers. They’d move from fear to clarity on what they need to do.
Hopefully this post helps you do the same.
If you want my personal attention on your marketing to help you work through these sorts of issues, book a call with me (get my time at that link for 75% off other places). I am happy to help.