Media Optimization: Hitting a $36 Million Revenue Target in a Live Demo

Some of the most common questions a CFO might ask the marketing team are: hey, how can we hit a specific revenue target, and they want to know, really, translating that, if you double click on it, can paid media get us there? Another version of that question comes: can we get more efficient with the marketing budget that we already have? Can we get more growth out of that same budget? And then yet another variation of this that comes is, if I give you another net new $100,000 of budget, A: where would you spend it, and B: how much more revenue would it generate? These are questions that marketers have faced day in and day out, and how do they approach these questions today? I can tell you that the most common approach that I’ve seen is to pull last-click ROAS performance data out of Google Analytics or Adobe and then work a set of formulas in a spreadsheet, and this has two major flaws to the approach.

One, we all know that last-click ROAS is biased; it’s going to overstate the bottom of funnel. But taking a ROAS number and trying to turn that into revenue ignores the diminishing return aspect that we know is present in all paid media. So if that’s the calculation teams are doing, it makes them less likely to hit their revenue forecasts. They might be able to spend the budget appropriately, but they may or may not have the echo, or the corresponding revenue, from that, and now you’re sitting in a meeting trying to explain why did we miss the forecast. We realized that there had to be a better way. We collaborated with some really smart marketers to make a more reliable way. So let’s go look at where this lives inside of LiftLab.

The better way inside of LiftLab starts here. We’re looking at the ROI dashboard, and what’s on the screen is an entire media plan that’s already been onboarded. So this would be the capabilities that a live, fully deployed LiftLab customer would have access to, and the questions that we just got from the CFO, we’re going to go turn our attention to the forecasting capability.

Inside of forecasting, we’re going to do a new analysis, and let’s do the first one, that first question from the CFO, which would be setting a target revenue, and we could do that for just the next week or we could go ahead and do this for a whole month in the future. So we’ll do this for the fiscal month of May, and here’s our capability to optimize for growth. So it could be, in the reference data from the media plan, that we had about a $35 million period, but let’s say in May we actually want to do $36 million.

So that’s the request from the CFO, and we’ve got a whole media plan here, so that’s available to us. Let’s go ahead and see what the default or first answer that LiftLab comes back with. Here’s our optimization period, here’s all the channels that we’re optimizing, there were some promos that are taking place in May that need to be taken into account, that is going to affect our conversion, and it’s done the work for us.

Let’s go ahead and look at the total revenue: with all of our channels, yeah, we went from just under $35 million to roughly $36 million. We put in 36, and that’s not, you’re not seeing things, we have programmed our algorithm to give a little bit of wiggle room around the target so that it solves rapidly. So that’s, for all intents and purposes, our $36 million, and we have done that with slightly less ad spend. So let’s go see how and why. It’s the same principle that’s always taking place in optimization; we’re going to identify the channels that are saturated and remove spend from them, and go reward the channels where we’re leaving money on the table and add spend. So here’s a channel in bottom of funnel prospecting where we moved from 419 to 622, that’s a 48% increase, and here’s how much more revenue that’s driving and what our new incremental return on that spend is going to be. If we go look at the total, we’ve got the $36 million that we targeted, and this should be a sufficient answer for your CFO. Here is our new revised media plan that will get us to $36 million.

Now you may have, just as a scenario here, you may have one of your channel managers say, “I’m not able to cut the spend that quickly in May.” So let’s go run a scenario where, let’s say it’s the affiliate channel: instead of moving that up and down, we’re going to just keep it at a constant spend. We’re going to keep the $270,000, and we’re able to go ahead and work around that channel across the rest of the media plan and see if we can still attain the $36 million that was our target. And now we’re looking at an answer; we can see the ROAS for this, and our affiliate channel now doesn’t have any change in spend, and fortunately, with the other channels still able to grow and shrink depending on their performance, we can still hit the $36 million target.

Now one of those other questions that came along, one that marketers get often, is what could you do with the same budget, could you get this budget to be more efficient? So let’s call that a profit maximization, and I want to define profit here. When we say the word profit, it is formally defined, the finance term for it is marketing’s contribution to profit, and so that would be your revenue times your profit margin, minus your marketing expenses.

Let’s go ahead and do that for the same time period, we’ll do it for fiscal May, and here we’re going to change it over to optimize for profit, and it might be that we have a constraint on the budget. Now I’d like to run these sequentially. Let’s go ahead and run this with a historical budget, and what we’ll do is we’ll look at this answer. So this isolates, with the same budget, how could I reallocate my spend and get more profit? So we’ll look at that result. So yeah, we’ve moved the profit from 1.7, or just under 1.8 million, to almost $2 million, and it’s the same principle: it is taking away from channels that are saturated and moving it into channels where we’re leaving money on the table.

Now one common question that gets added on top would be, what if I had more budget? So let’s go run that scenario. We see a new scenario, let’s do the $100,000 extra, and so now the question is: can we spend that efficiently? Is there a place to take, given all the funding and all the saturation that we’ve already found, is there a place to spend that $100,000 effectively? And we’ve got an answer.

What’s happened here is we’re going to get roughly the same profit, the 1.9, we had 1.99 before, but we did get some net new budget. Now we’re up to another couple hundred thousand in growth. So here we have still maximized for profit, we’ve been able to spend the $100,000 fairly efficiently, we’re not getting a net increase in profit from the $100,000, but we are seeing some net increase in growth. So this is a situation where you are now completely equipped, completely enabled to have an adult conversation with finance about where you would spend the $100,000, and in addition to that, that it will have an increase on topline and no negative impact on profit. I would like to see you enabled for a future forecasting meeting and a future dialogue with your CFO with an equal amount of information.