Where would you spend another $50,000 in your marketing budget?

We are all familiar with the concept of compromise. In your personal life, you have to figure out whether you’ll take a big vacation this year or whether you’ll replace your old car instead. Should you take that higher-paying job that requires a lot of business travel or stick with the one that lets you spend more time with your family? Resources like time and money are limited, so you have to make decisions about how to maximize them.

These trade-offs also exist in business, of course. Should you hire a new salesperson to attract new business or a new software engineer to create new features to meet the expectations of existing customers? How about deciding how to allocate your marketing budget?

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Marketers are spending money on online advertising to increase awareness of their brands or products and to drive traffic to their websites as part of their new business acquisition strategy. Conversion rate optimization (CRO), on the other hand, is all about providing a better experience for visitors once they land on your site so that they eventually convert. CRO can encompass many different activities such as A/B testing, experience design, personalization, content and product recommendations, etc.

Companies are responsible for balancing investments in these acquisition and conversion activities. Are you adding more money to the top of the funnel to attract more leads, or are you spending more money to convert more leads than you already have? It’s a classic marketing debate.

How would you deal with trade-offs? If you received an extra $50,000 to spend on marketing next year, where would you spend it?

The calculation of the budget compromise.

Before you make your decision, you’ll want to do a little math. Let me introduce you to a simple version of this calculation.

Let’s say your monthly traffic is around 50,000 visitors per month. At a 2% conversion rate – which is quite common in many industries – you would convert 1,000 of those monthly visitors. And if your average conversion value is $100 – either the average order value for an e-commerce business or the value of a captured lead for a B2B business – that translates to $100,000 worth per month. . With your extra $50,000, you want to increase that value as much as you can.

Addition to your advertising budget.

If you decide to add $50,000 to your advertising budget, you could generate an additional 50 million impressions, based on an average CPM of $1. If your click-through rate is 0.05%, you will attract 25,000 additional visitors to your site. Good work! But with a 2% conversion rate, you only gained 500 new conversions, or $50,000 in additional business value or additional lead value.

This additional $50,000 is the same as the $50,000 you spent to acquire these new conversions. Is it worth it ? Of course not.

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Adding to your conversion optimization budget.

However, if you invest that $50,000 in improving conversions and increase your conversion rate from 2% to, say, 2.2%, you will convert more of your initial 50,000 monthly visitors without adding traffic. . Every month, you’ll convert 1,100 people, which is 100 more than you could have converted at your lower conversion rate, which is an additional $10,000 in value per month. Over the course of a year, this improvement in the conversion rate will result in an additional $120,000. That’s a much better ROI on your $50,000 investment!

The acquisition or conversion decision.

Many smart marketers don’t think twice about increasing their ad budgets, even if the math doesn’t always justify it. Why are they doing this?

Looking at the budget in terms of percentage increases and decreases may be misleading. If you’re already spending $500,000 on advertising, increasing it to $550,000 next year doesn’t seem like a lot, because that’s only a 10% increase. But spending that same $50,000 on a conversion optimization solution that wasn’t in the budget last year seems like a big investment.

Marketers are also always aware of the need to increase awareness and drive traffic. They fear that if they cut off the flow of people coming to the website, they will lose all their conversions. And, of course, you still want to drive traffic to your website, whether through advertising, email, social media, search engine optimization, or any other acquisition approach. So I would never say that you should cut all spending on the acquisition program.

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But when planning your marketing budgets for next year, do some quick math and check your assumptions. Don’t just increase your ad spend incrementally because it’s easy to pay your agency more or invest more money in Google AdWords.

Instead, think more about the ROI of your ad spend. In many cases, this investment is worth it. But in other cases, this is not the case. Ask yourself if that money can be better spent on providing a better experience on your site to further convert your existing traffic. Ultimately, it may take more planning to spend that money appropriately than just increasing your advertising budget. But the math says it will be worth it in the end.