Choosing marketing channels is only the first step in digital advertising. Equally important is assigning a budget and then managing the spend based on performance.
In this post, I’ll provide a framework.
Considerations
Capping the daily spend helps manage a budget. However, it’s not ideal for optimizing performance. Assigning a maximum spend per the desired result (such as per conversion) is common, as is specifying a cost per click or cost per impression. These options, however, typically rely on the channel — e.g., Google, Facebook, YouTube — to manage the campaign as intended. Moreover, focusing on the desired outcome can make it difficult to meet a budget.
There are many variations to assigning ad spend. For example, you may run campaigns only in the evenings or weekends, as this is when you experience the highest conversions. Or the cost per click or cost per acquisition may not be a priority because your business has high margins — you want volume.
Monitoring performance daily facilitates quick changes. If, say, sales suddenly spike for a product, you may want to shift ad spend to another item. But if you are testing a new creative or message, you likely should not change anything until the process is complete, for statistically-significant results.
The challenge with daily monitoring is that it complicates monthly or yearly budgets. You may experience fantastic results on a single day that consumes 25 percent of your monthly budget.
The Solution
In my experience, the best way to allocate digital marketing spend is via a pacing calculation that compares the monthly budget (or weekly or yearly) to what you have spent.
- $ Spent. Amount spent month-to-date (excluding today).
- Day of Month. In Excel or Google Sheets use =DAY(TODAY()) to convert, for example, 2020-04-08 to “8”.
- Number of Days in Month. Such as 31 for March; 30 for April.
- Monthly Budget. Increase or decrease your monthly budget based on seasonality and key dates, such as Black Friday.
Next, plug in the data, as in:
- $ Spent = $1,500
- Day of Month = 8
- Number of Days in Month = 30
- Monthly Budget = $4,000
Next, compute the remaining spend for the month (or week or year), in four steps.
Step 1. Calculate the Average Spent per Day.
Average Spent per Day = ($ Spent)/(Day of Month – 1) or $1,500/(8-1) = $214
Subtract 1 from Day of Month as your data ended yesterday. An alternative is to use the actual amount spent through yesterday if you know that number.
Step 2. Calculate Projected Spend for the Month based on step 1, above.
Projected Spend for the Month = (Average Spent per Day)*(Number of Days in Month) or $214*30 = $6,420
Step 3. Calculate Variation from Monthly Budget.
Variation from Monthly Budget = (Monthly Budget)–(Projected Spend for the Month) or $4,000-$6,420 = -$2,420
A negative value (-$2,420) means you are overspending. A positive value means you can increase your daily outlay.
Step 4. Calculate Remaining Daily Spend to know how much to increase or decrease. There are a few ways of doing this. The easiest is to spread the unspent budget across the remaining days in the month, as in:
Remaining Daily Spend = (Monthly Budget – $ Spent)/((Number of Days in Month)-(Day of Month)) or ($4,000-$1,500)/(30-8) = $113
Evaluate and Tweak
This calculation will help evaluate and tweak a campaign. For example, if you frequently exceed your budget on paid search, you could add or remove keywords based on return on investment. Be wary of adding to the budget, however, as there’s often a point of diminishing returns.
