Managing Your Marketing Budget Like An Investment Portfolio
How to treat your marketing budget like a true asset
If you invest your personal finances into a portfolio of assets, say a combination of stocks and bonds, you hope for a tangible return. There is always an element of risk, but you invest based on the likelihood of yielding a positive return that surpasses the value of your initial investment.
Investing in a marketing budget is similar, but the returns come in the form of new customers, customer engagement, brand awareness, and, of course, revenue. As marketing leaders are codifying their 2024 marketing budgets, this approach can provide a more thoughtful and systematic method of maximizing marketing spend.
If we assume that an investment manager performers due diligence before making financial investment decisions, marketers must do the same and determine if a potential investment is worth making. This means looking critically at present business challenges, the marketing opportunities to address them, and the likelihood of their ability to make an impact.
Of course, the likelihood of an investment’s ability to impact equates to risk, and marketing investments have different risk profiles. There are the “safe” bets with strong track records for success that have a more predictable impact on your business with an established payback. Then, there are potentially riskier investments that could have a high return; it’s best to “test” these to understand their performance before continuing to invest at a higher scale. Finally, some investments could take more time to realize returns and likely require a higher level of investment, but the returns could be significant and yield a step-function change in your company’s growth.
Like any financial investment, you must consider if you can risk your investment going to 0 — it’s simply an inevitable truth that any investment may not yield a positive return.
With this framework in mind, marketing budgets can mirror classic investment principles, with congruent strategies for success shared by marketing and finance teams. Before this can happen, marketing and finance teams must align on fundamental perspectives:
- Establish a common language & standards: These are a set of KPIs to measure current performance and inform future investment decisions.
- Develop shared expectations of your investment portfolio: There should be agreement that not every marketing investment will work, but the portfolio should drive net positive returns to the business. It also means that while some investments provide returns in the short term, other investments pay off on a longer time horizon. It doesn’t mean that these investments are “off the hook” for short-term performance, but there should be some agreement on how these investments demonstrate near-term impact based on an agreed-upon set of KPIs, like sales or brand equity.
- Adopt the practice of starting small and scaling quickly: Marketing, with support from finance, should have a clear and straightforward way to scale initiatives into larger investments after proving value through a test-and-learn approach.
Now, let’s drill in on these bullets, starting with a common language and standards. Specifically, this is a measurement architecture that encapsulates marketing holistically across all teams. This framework should ideally be a set of metrics that informs marketing investment decisions across products and channels. Once established, the framework can forecast what success looks like in the short and long term, respectively.
Exploring Accountability Metrics
For example, at the highest level, a marketing team is focused on building a differentiated brand and sustainably growing and/or engaging a customer base.
Your measurement architecture might look like the examples below, where you have two types of metrics: accountability metrics and check metrics.
Accountability metrics represent your team’s north star (NSM), active customers, and brand equity; you use these to measure the performance of your investments. On the other hand, there are check metrics, “metrics that constrain the NSM and ensure that the NSM grows in a way that is sustainable and creates long-term value.”
For marketing, check metrics might be around the category, customer audience or competition, and serve as benchmarks to guide brand building and company growth investments. They help us consider questions such as:
- Performance: How are we performing within our category? Has our share increased or decreased? Our goal is not to increase market share in and of itself, but growth in share can be an outcome, though only sometimes.
- Perspective: How are customers thinking about our category? Are there specific macro issues or challenges that plague the category? How should we take stock of that?
- Visibility: To what degree are we thought of or noticed? How does this compare to the competition?
Short vs. Long-Term Investment Allocations
Just as a financial advisor would recommend diversifying your portfolio, your marketing investments should be allocated across both short and long-term time horizons or goals. In this case, short-term goals equate to customer acquisition and performance marketing; long-term goals equate to brand equity and advertising. It’s important to note that while these investments are different, they are not at odds — rather, their combined impact is greater than the sum of their parts.
The relative allocation of these investments is guided by several factors:
- The nature of your product: Does your product require a high level of consideration and therefore requires credibility and/or affinity? Or, is there a low barrier to someone using your product?
- Your product and company’s maturity: Is your product new to the market and requires immediate sales to find product-market fit? Or are you more established and able to sustain longer-term brand investments?
- The market’s maturity: Is your product in an entirely new category or concept that requires education before intent is possible to harvest?
- The macro environments and your company’s corresponding top-level objectives: Is it a downturn, and do you need to conserve spending to focus on profitability? Or is it an economic expansion where you’re focused on revenue? Customer acquisition, revenue, or profitability imply different mixes of spending across the funnel, including awareness, consideration, conversion, advocacy, and loyalty. For example, a top-level objective of profitability might weigh more spend toward advocacy and loyalty, such as engagement and retention marketing, and less on brand awareness, while a top-level goal of customer acquisition might weigh more spend toward consideration.
Low vs. Higher Risk Investment Allocations and the Role of Testing
Your investment portfolio should also be diversified by risk profile. You should always invest a portion of your investment in those proven strategies, longer-term investments, and smaller-scale tests with high upsides. Again, the relative allocation is guided by a set of considerations, primarily the stage of your company’s growth.
- Early-stage companies are cash-constrained, exploring and understanding their potential growth channels, and therefore invest a high percentage (20–30%) in testing and the remainder in proven strategies — once proven, of course — as they cannot typically make bigger bets yet.
- Growth stage companies have cash to put to work toward growth. They invest heavily in proven strategies (~60–70%) and less in continued testing (~20–30%). They typically do not yet invest in bigger, longer-term bets, but if they do, it’s on a small scale (0–20%).
- Mature, scaled companies maintain investments in proven strategies (60–80%), but start to allocate more of their budget to bigger bets that can provide higher upside (10–30%).
Putting the Framework to Work
Marketing teams review their investment decisions and performance on a monthly or quarterly basis, depending on the size and scale of the company. Once in a good rhythm, regular performance reviews create accountability and drive transparency.
If marketing teams are vigilant about accurately tracking and managing performance, reviewing and identifying their highest ROI investments, and ensuring they’re investing in the most impactful initiatives, there’s significant wealth to be earned in a brand’s value.
As with any traditional investment strategy, staying alert to market trends and keeping your strategy agile will lead to the best results. This means acknowledging when it’s time to pivot, reexamine allocations, and double down on high-yielding investments to protect and grow the overall returns to your brand and company.
