Maximising the return on your advertising spend is always important. But as we enter the first economic downturn of the digital marketing age, it’s about to become even more crucial.
With disruption in supply chains, rising costs, and uncertainty in the wider economy, it’s vital to manage the things you can control. And it’s much easier to control them if you’re able to plan ahead. That’s why forecasting the downturn now will give you a big advantage when recession takes hold.
Let’s look at how you can build accurate forecasts for your business.
The ideal scenario is that you’re able to act before you start to feel the effects of the downturn. By the time recession hits and you’re reacting, you’re already on the back foot.
To spot the early warning signs, move from lagging to leading indicators. In marketing, we love lagging indicators. Click-through rate (CTR) has tailed off, so let’s test new ad designs or copy. Customer acquisition cost (CAC) is creeping up, so let’s remove some underperforming keywords. In a downturn, these reactive measures are too little, too late.
Get ahead of the curve by switching your focus to leading factors. You’ll need a solid financial overview of your business to deliver insights you can act on. Juni brings your bank accounts, payment gateways, and ad networks into a single dashboard. This includes integrations with Google Ads and Facebook Ads, so you get financial insights specific to your media buying.
But which metrics should you pay particular attention to?
In marketing, we have trusted metrics that we rely on to measure performance. However, they won’t necessarily be the best metrics for forecasting the downturn. Here are some that might help you to generate useful leading indicators.
Is your marketing spend undercutting your gross profit? What’s left after your sales and marketing costs are deducted? A shrinking contribution margin indicates decreasing efficiency.
How to calculate contribution margin: Gross profit - sales and marketing costs = contribution margin
If your FCF is increasing, that’s a good indicator. A decreasing FCF is okay if you can pinpoint the reason, like increased capital expenditure to drive growth.
How to calculate FCF: FCF = operating cash flow − capital expenditures
How long will your cash last based on your current burn rate? This metric will help you to work out a deadline to raise funds, cut costs, or grow your sales.
How to calculate cash runway: Cash runway (in months) = Cash balance ÷ monthly burn rate
Does growing your workforce grow your sales, and can you maintain efficiency with stable or decreasing staff numbers?
How to calculate sales per employee: Annual sales ÷ number of employees = sales-per-employee
A high return rate is costly, time-consuming, and indicates bigger problems with products, packaging, or marketing.
How to calculate return rate: (Orders returned ÷ total number of orders) x 100 = return rate
Increasing CLTV points to a loyal customer base. Declining CLTV indicates customers who are spending less or are of lower value.
How to calculate CLTV: Customer value x average customer lifespan = CLTV
To restore your cash reserves and fund growth in a downturn, you need to recoup cash spent on bringing in a new customer as quickly as possible.
How to calculate CAC payback period: CAC ÷ (average revenue per account (ARPA) x gross margin percent) = CAC payback period
These metrics shouldn’t be viewed in isolation. Look at cash flow, costs, customer acquisition, customer value, and sales data together to build accurate forecasts within the wider context of your business.
Consolidated overviews and real-time reporting make it easier to track the cause and effect of financial decisions. The economic turbulence and rapid change of a downturn heighten the need for this level of understanding. Let’s look at an example of how you can achieve that.
You might reasonably forecast that people are going to have less disposable income. Can you improve your buy now, pay later payment options before your conversion rate drops? Can you preemptively negotiate better terms with your buy now, pay later partner based on your forecast for increased volume? Simple examples that show how forecasting can preserve sales and reduce CAC during the downturn.
The next step is to understand how cause and effect connect in your business. Start with something like an increase in the use of buy now, pay later, and work backwards from there, analysing each sale. Did they use buy now, pay later? Was it a new or returning customer? What was the order value? Did they use a discount code? Did they return the item?
Even those few questions can build a clearer picture of cause and effect. Are existing customers no longer able to pay upfront? Are you bringing in new, lower-value customers? Is spreading the cost of payments increasing your average order value (AOV)?
For media buyers, cutting costs only gets you so far. You also need to be able to get better returns from spending. A useful way of doing this is to look at gross margin-adjusted ROAS. What’s your return on every dollar of ad spend once you’ve factored in the cost of goods sold? To calculate this you need:
Revenue x % gross margin ÷ ad spend
That will give you a gross margin on every dollar of ad spend. Use the results as a sliding scale to decide which campaigns or channels should be stopped and where you should double down.
ROAS isn’t everything, and an incredible gross margin-adjusted ROAS counts for little if you have a high return rate. But it’s a good place to start making your marketing more efficient.
For another ROAS boost, put your ad spend on a Juni card to get 2% cashback for your first 30 days and up to 1% cashback after that.
The downturn might result in a squeeze on your budget, resources and time. Increasing efficiency will offset the impact. Juni’s Google Ads and Facebook Ads integration give you at-a-glance insights on cost, conversions, clicks and impressions over any custom timeframe and across multiple accounts. Make smarter, faster decisions based on those insights.
The Google Ads integration also automates receipt generation and automatically pulls invoices into your Juni account. That's another big saving on admin at a time when every minute saved is one you can put to better use.
The media buying equivalent of making hay while the sun shines. If your forecasts indicate you’ll feel the effects of the economic storm that’s gathering, make the most of the time available between now and then.
Increasing ad spend now could help to build your cash reserves to create a bigger cushion for when business slows down. Or you might generate growth that you can sustain into the recession.
Juni allows you to scale campaigns, increase your cash runway, and boost cash flow with flexible credit lines.*
*Capital for cards is available for companies registered in UK, NL, SE, DE, FR, ES, IT, NO, and FI, upon eligibility. Penalties and interest apply in cases of late payment only. Terms and conditions apply. See website for details.
Now is the time for action. Start building accurate forecasts so you’re ready to tackle recession head-on. Do this by:
This article was updated May 2024
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