Why You Should Treat Your Marketing Budget Like A Poker Bankroll

Just as the richest poker players can lose everything, even brands with the biggest marketing budgets can still lose millions on a bad play.

Pepsi learned this truth firsthand after running a tone-deaf YouTube ad in April featuring people marching down a city street with generic protest signs. Kendall Jenner suddenly joined the crowd, then stepped out of the crowd to make a stone-faced police officer smile by handing him a can of Pepsi. This left some viewers wondering if the announcement might be a belated (and expensive) April Fool’s Day joke. harsher reviews led Pepsi to withdraw it the very next day.

The viral outrage harm the potential revenue of the business and damaged brand feeling of Pepsi, especially on social media. Industry experts estimate cost of production, Jenner’s fees and media buy could have reached hundreds of millions. While such a big global brand could afford to take the hit, they never should have taken such a risk in the first place.

When a classified ad can become a big story in hours, every bet is a big bet. Poker players avoid losing too much at once by calculating risk and managing their bankroll. This means that a player with $2 million in the bank does not sit down at a table with $2 million in chips and then go all-in with a bad hand.

Your business must follow the same rules. In marketing, as in poker, disciplined bankroll management and calculated risk are the keys to staying on budget while seizing opportunities that offer a high return on investment.

Related: If a Marketing Agency Guarantees ROI, Run the Other Way

stay in the game

A great poker player who puts himself in situations where he should win 90% of the time could still lose 100 times in a row. It’s not guaranteed, but the longer a person plays, the more likely an abnormally long streak of bad luck will occur.

Not all marketing campaigns or investments will bear fruit, and sometimes several consecutive attempts fail. Companies that bet too much on these investments will struggle to survive; those with a budget to survive bad luck streaks will stay on track.

The best approach is to manage the ebb and flow between maximizing expected return on investment and maintaining a position of safety. When limited opportunities begin to pay immediate dividends, companies that practice bankroll management can double down, while others run out of funds to capitalize on the opportunity.

Bet on the best hands

Marketing budgets are typically created in a vacuum, with their numbers based on static assumptions and long lists of assumptions. If poker players bet on “what ifs” like most marketers do, they would go broke within a month.

Smart companies look at past performance data and create fluid budgets that allow room for unexpected events. By leaving money for the best opportunities, marketers can react faster to recent data and adjust spend based on real-time insights.

AT Ladder, we budget according to the 80/20 rule. Eighty percent of our marketing budget goes to proven winners, such as our B2B ad campaigns and our Facebook ad campaigns. The remaining 20% ​​is always for a new channel, creative build, audience, or test copy. We see opportunities all the time, so rather than spending our entire budget on potential big wins (or all on past successes), we spend small amounts on testing. When the risk does not pay, no harm is done. When the investment is promising, we try to develop it.

Related: How to Scale Your Marketing Without a Marketing Budget

How to win big without breaking the bank

The 80/20 rule helps, but it’s not the only way for companies to practice good bankroll management. Just as the best poker players continually adjust their styles, marketers can follow a few basic steps to maximize ROI and downturns.

1. Have enough money to bet.

Always keep a sufficient budget to continue on the right path and invest more if necessary. We set a target budget each month and never contribute the entire budget to a single campaign because we’ve learned that big wins can come from small spending.

According to a study recently published in the Harvard Business Review, as difficult as it is to evaluate new ideas, running many inexpensive tests at once is key. Authors Ron Kohavi and Stefan Thomke explored the outcome of a simple A/B test conducted at Microsoft, for example, to see how changing ad titles in its Bing search engine would affect revenue.

This initiative had been on the back burner until a passionate engineer suddenly decided to run a few cheap online experiments to test a few different possibilities. Incredibly, just hours later, an analysis showed that a single variation in a title led to a 12% increase in revenue – in the United States alone, that would be over $100 million a year.

As this story shows, even small marketing games can turn into massive gains. According to the results of “The CMO survey“As of August 2017, marketing budgets now represent approximately 11% of the average company’s total budget, regardless of company size.

With so much at stake, founders must choose their battles wisely.

2. Keep testing and investing.

The “CMO Survey” also found that companies of all sizes, in all industries, that rely the most on analytics in decision-making typically have marketing budgets that are 70% larger than the competition. . Are these companies analyzing the data to make stronger bets and seeing more success, and therefore larger budgets?

If an analytics service is out of your reach, you can always devote a percentage of your resources to promising new opportunities. Limited testing of small investments can provide powerful insights.

Today, our Facebook lead ads may be part of our 80% “proven winners” budget, but for three months we used our 20% crawl budget to test different formats and creative approaches. Once we realized we could replicate the results, we changed our budget to invest in Facebook Ads regularly and started using that 20% to test other options.

Related: 10 Experiments to Test Your Startup Hypothesis

3. Create a fluid budget.

Keep marketing plans and finances flowing from month to month. New opportunities appear all the time, but they disappear just as quickly. Build some wiggle room into the budget to avoid betting too much on one strategy.

We always double down on what works, like our lead ads on Facebook. These big wins from small expenses are only possible when we build fluid budgets that can accommodate new ideas at any time. Just as a poker player wants to have cash on hand when wealthy, inexperienced opponents sit down at the table, marketers must be prepared to adjust their priorities when golden opportunities present themselves.

The battle between Snapchat and Instagram proves how quickly marketing channels can change. Instagram users woke up one day to find Instagram Stories – almost a carbon copy of Snapchat’s functionality – on their feeds. Although Snapchat beat Instagram to the punch, Instagram’s Stories feature quickly overtook its rival, currently has over 300 million usersaccording to TechCrunch.

Poker players and traders strive not to win big once, but to develop a repeatable strategy that will lead to more sustainable and scalable successes. Heed these lessons from savvy poker pros to practice perfect bankroll management and be ready when it’s time to go all-in.