Optimal Budget Allocation + Why It’s Important in a Recession

Whether you’ve been watching the nes or you’ve noticed price hikes at the grocery store, it’s likely that you’ve witnessed a few effects of the current economic state.

Even as executive confidence levels fall, consumer spending habits change, and governing bodies respond to high inflation, business must go on.

The question is—how can businesses and marketers spend smarter, even in the midst of an economic downturn? At Rockerbox, we’re tuned in to the nuances of marketing data and impact measurement. It’s our mission to educate marketers with the tools they need to make more informed decisions, no matter what the economic forecast says.

In this blog series, our goal is to help you be prepared for a recession and to avoid extreme reactions that could have negative consequences on your overall goals. Instead, we’ll walk you through how to make smart, informed choices to expand your resources and maximize your reach.

Why Re-Establishing Budget Per Channel Matters in a Recession

When the threat of an economic downturn is on the horizon, businesses must come to terms with the reality of the situation. The fact is, we may not know what to expect when the economic tides are turbulent. This uncertainty affects large corporate decisions and individual daily choices.

But just as your family might need to carefully evaluate how much extra cash to spend on certain items or experiences, businesses must also think more critically about spending. This isn’t because all activity has stalled; on the contrary, it simply means that businesses must move forward in the smartest ways possible.

That means spending marketing dollars in ways that make the greatest impact.

Panicking vs. Working Smarter

In light of a potential recession, most decision-makers have two options. They can either panic and freeze assets and spending, or they can simply work smarter.

We believe the answer is to work smarter. Even in a downturn, we can eventually expect activity to tick back upwards in due time. By keeping this in mind, smart marketers can make strategic choices to set themselves up for future success.

Improve efficiency – Wherever you’re spending, that money should be working for you. Now is the time to optimize and adjust so that you’re receiving the maximum return for the resources you put in.
Focus on cash flow – What cash assets are available? How can you reduce the risks associated with these, while preserving as much as possible?
Don’t think too short term – Being overly short-sighted in a recession can have long-lasting negative results once the economy eventually bounces back. Successful companies ride the wave, expecting that it will eventually reach the shore.

Improve Efficiency Per Channel

In an economic downturn, one of the primary things that we recommend avoiding is wastefulness. Don’t be sidetracked about your spending, especially on fast-moving digital platforms. Monitor these carefully, and take steps to improve efficiency of each channel where you spend or advertise. Practically, this looks like:

Identifying opportunities – Identify placements that are over or under-invested in, and cut or scale spending accordingly. These are the “low hanging fruit” areas of opportunity to improve your overall channel or tactic efficiency.
Making tactical optimizations – Tactical optimizations should be ongoing, even for core channels like paid search and shopping.
Evaluating all mid and bottom funnel channels – Evaluation is often used for outlets such as paid search, paid shopping, paid social, affiliate, display, and native retargeting.

Understand Your Approach to Budgeting

You can’t start making adjustments and preparations if you don’t first understand your approach to budgeting. Determining optimal budget allocation is easy to do within Rockerbox, but recommendations are divided into two main categories: Bottoms-Up and Top-Down.

In the sections below, we’ll discuss what these approaches look like and how you can optimize your spend accordingly.

Bottoms-Up

The Bottoms-Up Approach states that you determine optimal budget per vendor and channel by determining optimal spend on a per campaign or tactic basis. A Bottoms-Up approach is helpful in the following scenarios:

You have extremely strict efficiency targets (CPA/ROAS)
You must arrive at optimal budget allocation per-channel

A Bottoms-Up budgeting style is typically used for mid and bottom-funnel channels such as paid search, paid shopping, paid social, affiliate, display, and native.

How to Reallocate with Bottoms-Up Approach

Rockerbox makes it easy to reallocate your spending with a Bottoms-Up approach. Follow the steps below to start spending smarter.

Identify individual placements and tactics that are over-performing versus under-performing against your target goal. (Check out Tactical Optimizations in Rockerbox for a detailed guide on how to do this.)
Reallocate budget on placement to a tactic level (For example–non-branded search, prospecting, and retargeting)
Arrive at your optimal budget allocation per tactic, and then per channel.

Top-Down

The Top-Down Approach states that you determine the optimal budget per vendor and channel based on the overall ratio of spend and aggregated average performance of that vendor or channel. A Top-Down approach is most often used when:

You want to ensure you have the desired spend split between branding and DR channels, in addition to spend allocation throughout the funnel
You want to continue to drive new users into the funnel and not cut off or stunt growth
You need to arrive at optimal budget allocation per-channel

A Top-Down budgeting style is typically used for upper funnel and branding channels such as linear TV, OTT, video, direct mail, sponsorships, and podcasts.

How to Reallocate with Top-Down Approach

Rockerbox enables seamless budget reallocation for users of the Top-Down approach. Follow the steps below to achieve your desired spend.

Determine the desired percentage (%) budget allocation for branding channels (versus DR)
Analyze the incremental impact of branding exposure to driving conversions from DR and organic channels
Isolate users who had branding touchpoints and “increased likelihood to convert” from DR and organic channels versus users without branding touchpoints
Derive multiplier of halo impact from branding channels to driving incremental conversions from DR and organic channels, and apply that multiplier when deriving optimal spend for branding and impact to increased DR and organic conversions

To learn more about best practices regarding budget reallocation, visit Rockerbox help docs.

Spend Smarter with Rockerbox

In the midst of economic downturns and upturns, we know that your spending matters.

The better prepared you are for the uncertainty, the more adept you’ll be when it’s time to pivot or optimize. Regardless of where your organization is on its path to growth, we hope that you’ll spend smarter with attribution data that gives you ownerships and freedom.