The P&L-Driven Strategy for Setting Profitable Growth Targets

The concept of measuring marketing ROI and the cost of acquiring a customer (or order) has been around for decades. Some of the activities I see that create hidden limits to a company’s growth are relying on industry standards for CAC and ROAS, comparing your targets and performance with others, and setting these goals from a predetermined marketing budget. Customer Acquisition Cost and Return On Ad Spend goals are a great thing to have. How you get to them makes all the difference. There are four key components for establishing and working towards a truly-growth-centered ROAS or CAC target. Over the last 25 years I have witnessed and been part of numerous marketing attribution and ROI strategies and activities. It is rare that a brand or company operates well on all four elements, most are focused on two or three. Each component has critical keys to success and growth-stalling pitfalls to avoid.

Realistic CAC & ROAS Targets: Why Industry Benchmarks Fail

Business Model and P&L Alignment: This is the place where many marketers fail. One business manager expected he could acquire hundreds of thousands of customers with a new, unknown, regional, mobile app on a $2 CAC with a 10X ROAS. His basis for those assumptions? “That’s what I can afford!” A better way of positioning that original investment is, “This is what I can afford to test into the best mix of media, buy price, targets, and margin. Another desktop app we worked with approached it properly as a learning activity and was willing to invest in the learning and testing process. Because the build cost was low, no variable costs, and there were minimal ongoing fixed costs the client had a lot of leeway with his high margin product to test varying levels of CAC and ROAS. Unfortunately for this app it became clear that the user desired mobile-first need-state would make this desktop app too hard to convert into a sale. Minimal investment and quick assessment to decide where to take the product next. The other part of this equation that can get in the way is being stuck on the rate or percentage and ignoring the absolute amount of profit or market contribution. Two direct to consumer subsidiaries of larger distributed sales major consumer goods brands were driving similar 35% of revenue marketing budgets/spends. Since the marketing budgets weren’t fixed both companies were able to invest higher as sales grew and invest lower if there was a slump. Increasing capacity for growth but also avoiding spending off a cliff if things go south. Company A was very focused on percentage of GSV as a goal and wouldn’t accept gifts of free advertising dollars from the parent company because it would throw off their success metrics and they wouldn’t be eligible for a bonus. (The CEO of the parent company knew that branded advertising had at best a 0.6X ROAS, so he was more than happy but the CMO of the direct business was concerned he might only get a 3X ROAS on this incremental spend.) Since he was focused on the metrics, he was measured on he turned down the opportunity to drive tens of millions of dollars of market contribution. Company B looked at profit holistically and when an opportunity came to divert millions of dollars of ad spend away from 0.5X ROAS to a campaign that might only produce 2.5X ROAS for the direct business they whole-heartedly embraced it and since they had a 92% margin in the direct channel, they gained massive incremental profit by doing this. That decision to go higher required looking into the P&L impact and being willing to forego a “metrics success” in lieu of a strategy that drives profit. As a side note, there was no degradation to the core business because their advertising was consumer franchise building and not call to action based. Any message and impression with the brand on it is an impression, even if it is selling direct.

Stop Setting Fake CAC & ROAS Targets: Here's What Works

Competitive Bids & Market Research: This is an area that gets overlooked often. You wouldn’t set your product price without knowing what the market can bear and what your direct and indirect competitors are doing. Why would setting a media buying target without knowing that be any more likely to succeed? “INDIRECT COMPETITORS? WHY?” When you are going out and trying to get good traffic on keywords, content, or destinations you aren’t the only one bidding. If you have an annual value of a customer of $10 based on in-app purchases and ad revenue and you are bidding on words used by Ticketmaster and StubHub, you may have some difficulty getting in front of your potential customers. If your competition for keywords is in a high-value market they can afford to bid very high dollars because the return is even higher dollars. Alternatively, you may be bidding for words against companies that are doing the media buy for impressions or engagement only with really big budgets. The hidden gem in this scenario is to see if the demand tails off on the last week or so of the month. If they have monthly spend caps then the supply and demand curve may look different at different times of the month. The end of the month can also be a blitz for companies that have to meet monthly sales goals and will increase spend even on lower ROI buys to meet a goal. The key is to get some intelligence up front and understand where you can win, and where you should be playing. Don’t forget the value of looking at how your messaging will differentiate your product and the solution you are providing to those eyeballs. A comprehensive review of the relevant digital landscape can help you put together a smart going in strategy and validate if your CAC and ROAS targets are at a good starting point.

Marketing Activation and Testing: Small Budget, Big Plans

Media Training & Boundary Testing: This section covers many of the activities in the next section so I will only discuss what is unique about this initial phase. First, I want to recognize that building a reputation and making people aware that you exist is an important first step. Many marketers want to jump right into CPM, CTR, and CPC and star trying to drive traffic and sales. While many want to dispute it, the marketing funnel does exist. As an example, when we did our first Print Ad in People Magazine for MYM&M’s I was waiting at the airport for my flight. The magazine had just dropped that day and the woman across from me was reading it. I was just getting ready to ask her if I could take a look at it to see our ad, when bam! She flips the magazine towards her coworkers (sitting next to me) and shouts, “Guys, we so need a reason to buy these!” Forget the uniqueness of me being there during that moment, do you see that every day? Does your brand have the awareness and reputation that if you put something new out that people will want it that bad? For most, the answer is no. However, you should never underestimate the value of walking people through awareness, understanding, wanting, and needing your product. That’s what this first part of the activation process does. Start with some light spend on high volume impressions, then start driving a CTA to learn more, then start pushing to come and buy. During this phase you are also testing to see who reacts and who doesn’t, what messaging and creative works best, which formats, or which placements. Go heavier into the ones that are supported by your previous intel but don’t be afraid to do small tests in the area you aren’t sure of. Intuit dismissed its Quicken customer survey two years in a row when people said they used it for business. Then they started asking these people directly to understand … voila … QuickBooks was born. Smetimes the secret to success is under the rock you had no idea was there. At MYM&M’s we had a strict “no business usage” policy the first six months. When we did our initial use case research on orders, we found out 30% of our sales were from businesses for business use. The thing we said we didn’t do was our best product. Meanwhile, the need-state that market research said would be biggest (the reason for the name) was less than 1% of sales. These things happen; these opportunities are out there. You need to make sure you are out finding ways to stumble into these happy accidents. Focus on the probable but don’t forget the possible.

Stop Calling it Growth Marketing: It’s Performance Optimization

Performance Optimization & KPI Evaluation: This is where 90% of the conversation, 95% of the job descriptions, and 98% of the focus right now in marketing. (Note: this is emotional research and not fact-based.) First off, the elephant in the room, “GROWTH MARKETING” being used for marketing tactics around performance optimization is the worst hijacking of a term in decades. I will challenge current convention and say that something like a small startup buying a Superbowl TV ad is a form of growth marketing. It’s a conventional buy, it’s a mass medium, and it’s a big and expensive purchase with no direct attribution. However, it’s big and bold and has the potential to gain a lot of prospects and customers. It doesn’t always work, but when it does, that’s growth. Conversely, your paid social buyer adjusting settings on meta within a fixed budget to get the most engagement and visits with the limited funds is not IMO growth marketing. It’s better sales, it’s more informed tactics, but I believe growth marketing comes from evaluating the possibilities, understanding your financial modelling variables, understanding which combination of margin and marketing contribution leads to the most profit is truly growth marketing. Focus, skill, and strategy around all four parts of this process will yield better results. If you are adjusting switches in a fixed lane you may be missing out on huge growth and profit opportunities out there.