How To Win More Often In Managing Your Investments & Online Marketing Budgets
Managing online budgets for eCommerce or any other business is similar to managing your investment portfolio. You have to know what you are doing with your money so that it works for you, making you more money. In the last couple years, I have immersed myself in learning more about investing in mutual funds and self-managing my retirement portfolios. I realized how much budget management for online campaigns has in common with the best principles of investing. Here are the 15 principles, which you can practice as well so that you win more often in both managing your money and your online marketing budgets.
1 Asset allocation is key to successful investing and to a balanced marketing mix that consistently delivers traffic and leads.
If you talk to all the savvy financial investors, they will say that asset allocation is not only what makes you wealthy, but what helps you stay wealthy. You can lose it all if you are not careful with your choices. It is the long-term principle to follow if you want to enjoy the riches you accrue through your money-making years. Asset allocation is deciding where you put your assets, dividing your investments into various classes (stocks, bonds, real estate and commodities) at specific proportions based on your goals and needs. The same applies to splitting your online marketing budget and doing so in such a way that you have a secure flow of leads and traffic and also have the ability to find growth in new channels that work for your online business.
What happens if you do not follow this principle?
In finance, you are likely to lose more and faster if you invest all your eggs in one basket, even if it is a seemingly secure basket like long-term government bonds for example. I made this mistake once, which could have cost me getting only 50% of what is possible from the invested sum over the year (on a monthly basis, I got 4.6% less of what I did in the prior portfolio with 6 assets vs. just 1, which cumulatively could have ranged in 50% loss of what could have been with the original mix). As soon as I saw this trend, which still took one month of data and my money, I learned this principle and lesson very well.
In managing online marketing budget, you are also at risk of depending on one or two channels of traffic. For example, back in 2011 many affiliate businesses went out of business, because they were dependent up to 80% on organic search. Many of a new e-commerce and Saas companies run the same roulette these days, particularly because these channels are “free” or do not require much support, yet it does not mean you are getting the best of return on your marketing assets or content that you are producing. You might not be losing much revenue if your business model does not depend on the clicks like it was with the affiliate marketing businesses, yet you are losing on much more lucrative paid opportunities which can bring better customers.
Thus, do allocate your investments and marketing budgets in separate money making assets (channels), learn from other peoples’ mistakes vs. your own.
2 “What gets measured, gets managed.”
A wise man said it once and it works every time you need to learn something new and become fluent enough to make the decisions about the matter. There is more to that quote: you really need to find the data that teaches you to grasp everything about the activity and be able to come up with your own answers to your pressing questions vs. relying on so called experts here and there. When I had my money managed by a broker, I got quarterly reports and a few minutes of explanatory conversation on what happened and what was done. I did not understand enough to make anything out of what was delivered to me because I did not know better. I could not tell if what I was told is good enough, excellent or just average. What I did not like was also the quarterly outflows of income to that broker from my assets, making me feel as if I am funding someone’s else current being and livelihood vs. investing wisely in my own future. The statements I got were also in print or PDF, without the history and the details. I could not make sense of it. Until I decided to manage it myself and got down to the data. I realized that what is reported in various financial institutions can differ greatly based on which formulas they used (it varied from one firm to another, similar like happens with analytics apps). I also found that some data that is actionable is missing and can be obtained on Google Finance or MorningStar in a format that I can understand. I also realized I need more external data as well to be able to notice what is happening.
So, the key step was to come up with the list of Top 6 KPIs (types of return and metrics that are comparable across reported data sources, that matter to me vs. look better as advertisement: (1) time-weighted return, (2) internal rate of return, (3) total return, (4) cost basis sum, (5) % of portfolio and (6) dollar balance) and create my own charts and tables in excel that help me visualize what happens. Step two was to create a dashboard that I can use and update monthly to see the real returns, spot patterns and be able to make sense of it all. Step three was to look for other types of data, not provided by the investment company, yet helping me in learning more about the assets. So, I added data from MorningStar and Google Finance to add another layer of short-term insights.
Similarly, in managing online marketing budgets, you need to look at both the immediate weekly performance of your internet marketing campaigns as short-term data inputs, but also keep your spend focus on the longer term effect of all three inputs – the total return of online marketing budget, the separate returns to sales of each separate channel and the attribution nature of the buying experience. This is where the top 6 KPIs come into play to keep you focused on what matters: (1) how much revenue you are making with each channel, (2) what is your cost per customer acquisition for each channel, (3) what is cost per customer acquisition ratio (across all channels), (4) what is the conversion rate for each channel, (5) the ROIS from what you spend and what you got in sales and (6) attribution value as a percentage and as a dollar value .
If you only use the performance data without looking at marketing mix variations (portfolios) and attribution value, you can miss out on seeing what is possible if you had different proportions in your spend allocations for the entire budget. It is better to see that information at the same time as you get to assess the short-term performance data to make faster decisions vs. doing an estimate or what if scenarios before or after. Plus, what happens the next month with your marketing can be affected by other external effects, so your marketing decisions might be flawed.
3 Look for asymmetric returns, when choosing where to invest (5 to 1 ratio) so that for every $1 you spend, you get $5 in sales
Paul Tudor Jones, the founder of Robin Hood Foundation and a successful investor always looks for asymmetric returns within 5 to 1 ratio. The idea is that you have a 20% hit rate with your investments if you follow this rule. You can be wrong 80% of the time, yet still not lose, because you will be right one time out of five. In assessing his investments, Paul uses a 200-day moving average metric (stock price) to spot an eligible asset. If the price is below the moving average you get out of it. To me, that speaks of predictability and less volatility, it works better for ETFs vs. mutual funds.
In online marketing, you could find similar data for a new channel or a themed SEO campaign based on CPCs or CPAs for 200-days moving average, yet use it in reverse (get in when the price is below the moving average). Or use a couple more additional metrics and or get performance benchmarks for 2-3 related businesses for the last 60/90 days to gauge the potential. Or if you are doing conversion or revenue optimization in a sizable eCommerce business, review the A/B testing history by type of tests for the last 9 months and you will find the tests to rerun or to get inspired from to come up with more likely money makers.
4 Rebalance your portfolio based on performance
To become a good investor, you need to be disciplined to practice rebalancing your portfolio periodically. Say your high growth bucket kicks off and grows from the original 60% to 75% ratio within your portfolio. You need to rebalance at this stage to prevent losses from sticking for too long and having the major portion of your capital be played within this high growth asset class. This is how many people lose all their gains, caught by the emotion and psychology of the recent success.
Similar, in internet marketing, you need to plan your annual spend and mix according to the seasonality, demand, and competition, while still meeting your traffic, sales and CAC targets. After a year or two of running online marketing operations, you should be able to have a sense of the optimal mix (balance) for each channel class and keep it as such to get the most of your online marketing budget.
5 Become an insider, become an expert
There are two types of experts: the ones that teach you something and the ones that claim to be the experts or do the thing the proverb describes: “When a man with money meets a man with experience, the man with the experience ends up with the money, and the man with the money ends up with the experience.” If you want to make money making decisions for your upper funnel marketing and conversion optimization initiatives, you need to know what you are doing. You need to have sufficient experience down to the granular detail and full cycle processes to make sound spending decisions.
While most marketers that get to manage performance budgets have practiced their skills over the years in a variety of channels and established their processes of assessing campaign’s’ feedback, there are times, you have a leader or the new business owner who makes those calls without appropriate experience and expertise. Or like in managing your investments, you become the key decision maker versus your tax accountant or fiduciary. In these cases, you have to educate yourself quite a bit on what you are doing to avoid overpaying for the execution services, be those other agencies, performance marketers or brokers. Why not gain it prior and as soon as you can before you get to spend your money or help you choose the right person or the system to do it for you? Work with the experts first who teach you to become an expert yourself. Work with those, who teach you how to fish for yourself.
6 Beware of the recency bias
Recency bias in investing is when we place much weight on the data for recent performance of the fund and make a conclusion that this trend will continue moving forward. We expect that an event is more likely to happen next because it just occurred, or less likely to happen because it hasn’t occurred for some time. I made this mistake with my portfolio, observing the market and one specific bond fund that was in green for the last 3 years, 1 year, month and weeks. All else had a different trend with cycles. So, I figured, it is a safe bet, plus what could get wrong with the long-term government bonds index fund? Well, to my surprise, the trend changed and I also learned from that month that if I had left my assets in the same mix, I would have made a few thousands more than what I achieved in the new portfolio. I kept the old portfolio spread in my Google Finance and compared it to the performance of a new one. I wished I did not make that rookie mistake.
In internet marketing, the same mistake can be made if you jump and pour funds into a high growth channel based on one specific campaign and without understanding why it was working well and perhaps miss some external factors outside your control that drove its popularity. You need to know exactly if the growth is something you can drive moving forward and what resources you need for that or leverage it only temporarily so that you know exactly what is required from you to contribute to its success and be able to repeat it. I had a client that spotted one of the labor intensive yet super effective campaigns within 2 weeks since launch and ordered its team to focus all of their efforts doing just that. The problem was in the temporal and limited nature of the initiative, it worked only for 2-3 weeks till the competition noticed the changes in their community and created blockers and launched counter campaigns. Because of the resources shift, other marketing initiatives were put on hold and the momentum was lost there while the recent winner initiative had burned out in capacity shortly. It was effective, but of a short-term cycle nature vs. a long term steady capacity to drive sustainable growth. Do not jump the gun, allow for a few seed initiatives before pouring funds into a channel.
7 Test drive your broker and your campaigns to know what you are getting
If your retirement portfolio is actively managed, you might be paying too much in expense fees or sharing some % of your growth that significantly reduces the benefits of compound effect. Knowing the costs of running your portfolio and the run rate of your manager can help you make the decision how to approach our portfolio management. You can try and run a couple of trial investments with StrongHold Financial or Wealthfront, alongside your broker firm.
Simultaneously, you should test drive your new online marketing campaigns, executed self or via an agency to see what you can get done professionally and self. Preferably, run those campaigns at the same time to be able to compare them with less external factor effects.
8 Decide what goes into the security bucket and risk growth bucket
Savvy investors always have a security bucket that always delivers and not touched as much (other than for the rebalance exercise once a year, or periodically to adjust the proportions and only to add to it, not to take out). They also have a high growth sum allocation that invests into new, emerging, high-risk opportunities. Because both exist, the entire portfolio is balanced. The security bucket acts as a steady contender that delivers consistently, without noticeable fluctuations.
The same can be applied to managing your online marketing so that you have a steady pipeline of traffic and leads and also have high growth initiatives that allow you to raise the level of traffic or leverage the seasonality of buying behavior for higher conversions. You do so while you are coming up with a marketing strategy and assigning your budget, timeline, and execution priorities (I teach the process how I do this in my online course). Of course, to make those assumptions and deliver, you must have experience in getting results through a specific initiative or have enough history to assess the feasibility and impact. Yet, to me, it is a great step in the process of developing your marketing strategy and traffic pipeline to ensure a workable long-term solution. It keeps it real and safeguards your marketing resources.
9 Do all you can to improve productivity
Ray Dalio, one of the successful investors, has a useful video that describes his template of how the economy works as a system. And one of the top three key thoughts in how to manage the economy for it to flourish is to do what you can to improve productivity. Because in the long run, this is what matters the most. In managing online marketing, demand generation or estore growth plans, you also have to strive for increased productivity. Thus, it pays to develop an optimization strategy for your online marketing funnels, site operations, and sales team process (if you are in B2B) to increase the productivity of all the activities you budget for with your time or money. I do this every time I start a new project for go-to-market or customer acquisition. Each initiative in the upper, middle and lower funnel get parallel optimization work to increase the effectiveness of the market assets I am building. It just makes sense to do so.
In managing online marketing, demand generation or estore growth plans, you also have to strive for increased productivity. Thus, it pays to develop an optimization strategy for your online marketing funnels, site operations, and sales team process (if you are in B2B) to increase the productivity of all the activities you budget for with your time or money. I do this every time I start a new project for go-to-market or customer acquisition. Each initiative in the upper, middle and lower funnel gets parallel optimization work to increase the effectiveness of the market assets I am building. It just makes sense to do so. To learn how to do this, check out the preview of my online course.
10 Rule # 1: never lose money. Rule # 2: never forget rule # 1.
Warren Buffet has a fun rule when it comes to managing your money. And he does mean it to the fullest. If you have any experience in investing, you hear often that this is the money you can easily lose, so do have that expectation. I disagree and I do not wish to play with something that can lose any of it. Buffet has a similar view. If you study his approach, he never invests in something that is likely to lose the original principal.
In online marketing, while managing your spending, do enough diligence work and seed tests for your marketing campaigns before you allocate a significant chunk of your budget. You have to invest only in what delivers qualified traffic and leads. This decision is easy to make once you test out your growth opportunities.
11 Use proper benchmarking
Whether you manage your investments yourself or via a fiduciary, you need to know how you are doing in relation to other alternatives and related investments. Without having access to comparative benchmarks, you would not know if you are doing well getting 7% growth on your portfolio while others might be doing better. Plus, just knowing the competitive or alternatives’ numbers also is still not enough. You have to look closely how those are calculated (know what goes into those reported returns and what is taken out). Many investment firms have different naming conventions for total, average and other returns and you have to adjust them to compare correctly. And to have some sense of the market conditions, choose a comparative for each asset class or fund. MorningStar has enough detail to find the best benchmark by asset mix and accepted index fund.
Same applies to managing performance marketing campaigns or growth metrics for your site/app. It helps to see what gaps you might have in performance in terms of cost per acquisition, revenue per visitor and conversions. This sets a stage for where you can aim if you are missing the targets. It might also lead you to helpful competitive discoveries on what else you could be doing to improve. For example, if you are in the haircare market, selling products online, do look up at the conversion rates from the reported top 500 IR eCommerce retailers and see if you have room for improvement. I also use it for estimates for new businesses entering a market and new startups launching online. Just make sure, you also remember that your performance and anyone else is also highly contextual and be able to fill the details in the context of your business and the accepted target.
12 Remember that performance is highly contextual
Which, again, means that any competitive analysis or comparative data is incomplete and many details related to execution, resources used and strategy are omitted. Your situation and customers carry some unique factors that paint the shopping and buying experience from your marketing and estore experience. Your marketing and site experience have specific issues, opportunities for optimization and the execution element, specific to your business. So, take the benchmarks in, but focus on investigating specific problems you can tackle to improve your performance. Even if you get a number of ideas for your site experience or campaigns from the competition, remember that you do differ and will have different outcomes. Dwell on the opportunities you spot, understand why they work, break down the context to be able to learn the real nuggets.
13 Measure your strategy beforehand, model and evaluate
Having a foresight always pays off, which makes it even more important when you manage your money or online budget for marketing spend. With the former, I found it effective to use Google Finance and create various portfolios and watch the performance over time to see what I could get with a different mix or fund selection.
With the latter, it helps to do simulation scenarios manually or via the algorithmic tools you have to see what results you can achieve by investing in different types of campaigns for user acquisition or retention. Strategy changes with the execution as it is never perfect and what helps make it more effective is doing a simulation run with the costs, behaviors and performance assumptions or business rules. I do that often for each paid initiative as the budget is at stake and I want to make sure to be 80% close to the estimate. Luckily, there are pretty straightforward ways how to do so to assess the go-to-market performance of paid search or the level of demand for a specific product line, which I teach in my course. Doing this exercise helps you see what is required and what is possible so that you iron out the details and land in the right direction when you actually get to invest your money or spend.
14 Know the costs of managing your funds, and the range of customer acquisition costs
Nothing is free, even putting your hard earned money into funds (with risk) has costs (expense ratio) and selling for gains (tax implications) that chip away from your total gains. Not all mutual funds are the same, index funds are cheaper and some offer tax benefits if you follow the small print in case you decide to sell faster so that you keep growing in a tax-deferred or tax-free environment.
Simultaneously, with online marketing, you have to know your customer acquisition range to be comfortable while experimenting with your mix. The cost of customer acquisition will vary for each channel because there are various costs to run those campaigns based on the platform, competition, targeting capabilities and even increased spend to the same channel. So, it is unfair to compare different channels as is. Know the price you have to pay to play in each channel and with increased spend. Do the simulation estimate before launching it and know the acceptable range to bid well.
15 Follow a systematic process
Once you do a thing a few times, you develop a process that works best, which allows you to stay consistent in how you expend your energy and make sure you spot trends and patterns to play with. In my work, I found that following the same process helps to save time and become effective in spotting opportunities for optimization, while also eliminates human and platform errors. When you manage your online marketing budget, be systematic and develop rules which help you rebalance your mix. When developing a marketing strategy, do not just make a list of all things you could do to grow your business. Follow a discovery process from market research to zero on the most viable opportunities that are supported by numbers (the volume of potential leads as an example) and ease of entrance. I cover a number of those that I developed over the years in my online course to help you success in online marketing and conversion optimization.