The Changing Landscape of Marketing Budget Allocation

By Salvador Daswani
September 26, 2016
Digital MarketingStrategy

As a marketer of a luxury hotel or travel product, there’s no doubt that you’ve struggled with how to allocate your digital marketing budget between different online initiatives. While this struggle isn’t new, nor unique to the travel industry, there are some interesting challenges facing those responsible for determining how to spend those precious digital marketing dollars.

A Simpler Time

Let’s take a trip back in time to 1990. Mary McMarketer, the Marketing Director at Hotel Old School, just got approved to spend $50,000 and $20,000 annually on TV and radio ads respectively. The previous year, the $70,000 budget was split equally between the two ad mediums – $35,000 for each. However, the CEO of Hotel Old School felt that radio was a dying medium, and given the average American’s voracious appetite for TV, the advertising money would be better spent there. Mary agreed. Last year, she had specified that a different phone number was to be used for Hotel Old School’s TV and radio ads. Hotel Old School’s reservations department had received many more phone calls from the TV ads than the radio ads. Every year, Mary would meet with her CEO to review the results of last year’s marketing initiatives, and revise her marketing budget allocation based on the previous year’s results. That is, until Hotel Old School went under in 2001 due to a lack of reservations.

Results in Real Time

One of the primary differences with digital advertising, when compared to offline advertising, is the ability to measure our results in real-time and adjust our strategy, including our budget allocation, accordingly.  If you are spending $500/day on Google Adwords and $100/day on Facebook ads, but you realize you’re seeing much better results from Facebook ads, with a few clicks you can reallocate some of the budget from your Adwords over to your Facebook budget. What would happen to Mary if the radio station she was advertising on suddenly became more popular, meanwhile the TV station lost viewership? Would she quickly be able to switch gears and focus of producing more radio commercials? What if she already spent the majority of her $50,000 budget creating a TV commercial?

From a budget perspective, digital marketing has changed the marketing landscape because:

  • We now have access to real-time campaign performance data.
  • Barriers to entry for many online marketing initiatives are relatively low.

Effectively, we’re still measuring results and making budget allocation changes based on those results, but:

  • We can now measure those results much more accurately.
  • We can make budget allocation changes much more frequently, or even instantaneously.

It’s all About the Data

It’s our ability to measure, interpret and act upon campaign data, combined with relatively low barriers to entry compared to many offline marketing tactics, that has spawned this fundamental change in the way we allocate marketing budgets. Digital marketing budget allocation does not fall into the “set it and forget it” category. Constant monitoring of results, and budget allocation adjustments based on those results, are necessary. In fact, this is starting to happen automatically. For example, Google Adwords allows bidding by target cost per acquisition (CPA). That is, hotel advertisers can set their target cost in order to get a booking, and Adwords automatically adjusts CPC bids based on the likelihood of a booking, determined by data from previous bookings. While Adwords doesn’t adjust actual campaign budgets, you get the idea. The era of automated budget allocation has arrived!

Adwords Target CPA Bidding

Measuring our Return on Ad Spend (ROAS)

In order to properly allocate our marketing budget, we first need to determine our ROAS for our various digital marketing initiatives. 

In general, digital marketing tools or platforms fall into two categories:

  • those that increase website traffic (ie. Google Adwords and other CPC platforms) and
  • those which increase conversion rates (ie. on-site price comparison tools).

It’s imperative to understand the fundamental difference between the two. It’s usually quite simple to track ROAS for tools that increase website traffic, as most platforms allow for ecommerce tracking to determine which clicks led to a reservation, and the value of that reservation. However, measuring ROAS for tools which increase conversion rates can be more tricky. Given that the user is already on your website, it can be difficult to tell whether or not they would have booked without the marketing tool you’re measuring the ROAS for. In these cases, taking a holistic look at overall website revenue before and after the tool was implemented can be helpful.

It’s also important to take into consideration whether you’re competing for reservations with a competitor, or your own listings on various OTAs. Assuming a 20% OTA commission, if you’re competing with your listings on OTAs, earning $100 for every $20 spent would mean that, at best, you’re breaking even.

Digital Marketing Budget Allocation Tips

Even when you’ve accurately determined your ROAS for various marketing initiatives, it’s not obvious how to initially allocate your marketing budget. You could simply put all of your budget into the initiative with the greatest ROAS, but that may cause you to lose out on other opportunities: just because a given initiative performed well one year, doesn’t mean it will the next, and vice versa. There are no hard and fast rules for determining how to allocate digital marketing budget, but there are definitely some tips that can help!

Be Flexible

The ability to adjust allocations frequently, in real time, is imperative. Hotel Old School would have trouble surviving in today’s digital world because they’re too rigid when it comes to allocating their marketing budget. External factors can make some marketing initiatives more valuable than others during certain times, and less valuable during other times.   

Don’t Let Your PPC Campaigns Max Out

If your PPC campaigns are reaching their maximum daily budget before the day’s over you’ve got a problem. This doesn’t necessarily mean that you should increase the budget of those campaigns, but reducing your CPC bids may allow you to receive more clicks for the same cost while maintaining exposure throughout the entire day (provided you’d like to do this). However, you may wish to allocate more money to a campaign if it is performing well relative to your other digital marketing initiatives.

A Campaign’s Budget May Already be Maximized

At times, even with high bids, a CPC campaign may require less money than you’ve budgeted for it. This is commonly the case when very specific keywords or audiences are used. In these cases, our maximum budget may be determined by our market’s interest in what we’re advertising.

Be Aware of Display Ads

Display ads can be a great way to build awareness, but apart from remarketing they are often ROAS killers. Why? Users are usually not looking to make a reservation at the moment they’re shown the ad. Be cautious when allocating money to a display campaign. Your budget may disappear more quickly than you expected!

Save Some Money for Experimentation

New marketing tools become available frequently. Having a small amount of money set aside for experimentation with these new initiatives is a good idea. At the same time, thoroughly research an initiative before spending money trying it out.

Take Advantage of Free Trials and Coupons

Many applications and ad platforms offer free trials, or even coupons. 14 or 30 day trials are fairly common, as are coupons for free or discounted ad spend for use on CPC platforms. Take advantage of these opportunities to experiment before spending your limited marketing budget!

One Final Rule: There Are No Firm Rules

As tempting as it is to try and create a set of rules to guide your digital marketing budget allocation, having a fixed set of rules will only hurt you in the long term. What worked last month may not work today, but it may work again next month. By remaining flexible, and strategically deploying money where you are seeing the most return, you’ll be able to effectively use your marketing dollars to drive more direct revenue to your travel business.

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