Ad Budgeting & Scaling - RESS

· Case Study

 2020 annual revenue: SGD15,417.33

2021 quarter 1 revenue: SGD15,262.41

MRR 2021 Goal: SGD0 🟩◻️◻️◻️◻️◻️◻️◻️◻️◻️SGD60k

Compared to previous month, Q2 2021 first 3 days sales is slower - 59% than for the same period in March to be precise. Ad spend for the month as of today? 3X of revenue. 

This is expected because Q1 audience has been exhausted. The challenges of revenue growth and ad scaling. 

We needed to test new combinations and wait at least 5 days for it to mature. Then scale. That waiting is painful. 

Doors are opening. The wait isn't punishment. 

It was preparation. 

Normal businesses treat ad spend as expense. 

Marketers here plan the month/quarter/year with a fixed budget. Risk appetite is close to zero. The downside is inability to change according to situations. 

Growth stage business treat ads spend as investment.

We plan our budget on based on previous month revenue and zero revenue maximum allowable burn. 

First thing most businesses cut during tough times is marketing spend. We double down because less business spending means less competition in bidding for ads. 

For sustainability purposes, we limit ad spend at 55% of last month's  ecommerce revenue as starting month budget. The benefit of this form of budget planning is the absolute dollar budget per month increases as monthly revenue increase over time. It's agile. 

Minimum ROI to hit at all times is 1.81. 

Lower then that means can go fly kite. 

The baseline goal is to hit similar revenue as previous month at worse case scenario to remain sustainable. Cross the redline and it's financial chaos. 

The approach is scale ad budget for the period:

1. Ads spend to revenue is maintained at 55%,

2. Keep scaling as long as revenue goes up and sustainable,

3. Credit card limits can support. 

Credit card is usually the limiter. Hence advantage goes to those with high credit card limits. 

The crux in scaling: Cashflow management

What we earn today we only get the cash in the future. This depends on settlement period of payment gateways we use. 

Currently it is T+30. Meaning what we sell today, we only get the cash 30 days later but we have to pay credit card bills before that. Remember the credit card limit? 

Within that 30 days, we need balance it with credit card bills, operating expenses, delivery fees, and other immediate payments due. 

To be on the safe side, retained earnings are kept as insurance in case there's delay in sales settlement. We can't afford credit card interest rates. 

Sounds risky? Yes it is. Very. But that's needed for growth. 

Scaling ads: The roller coaster ride

At a start when budget was only SGD300 for the month, we can't test much. 

Campaign 001 - July 2020.

No such thing as testing age, gender, interests, creatives, or any part of an ad because we would be splitting the budget too thin and test results won't be useful. A good test is SGD30 per day per combination. 

At SGD300 budget, it would have been gone in a day if I have 10 combinations to test. If we fail, we'll need to wait for the next month for new budget. 

We know 20% to 25% of Singapore population have eczema. Just different severities. At SGD300, our bet was female 35 to 45. This is the bet. 

Assumption was this group have higher chances of having buying power for our products. Why female? Because we can't afford to target both sexes together. 

Lucky for us, we got lucky and our bet SGD300 made SGD2,135.49. Now we have about 3X ad budget for the next month at SGD1,175 (55% of previous month revenue). 

Now with SGD1,175, we can test same age group but this time male vs female. As revenue grew month-on-month, we could test more combinations because we have more starting budget every month.

When scaling ads, settings used last month may not work on coming months. This is due to a variety of factors, but mainly driven by one thing: media spend budget of the big boys. 

July to September was peaceful for us. 

Come Q4, you get 10.10, 11.11, 12.12, Black Friday, Cyber Monday, Christmas, New Years. Some go on clearance sales and throw price. 

Worst part is that was the time I just got to know that when ads spending by the big players in Q4 usually is more than the first 3 quarters combined.  

All this scaling needs to take product supply into consideration. Can't scale when there's no stock.

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Credit to Adstrux Asia's Key Account Manager, Richard Moh