ROI in “Brand Awareness” Matters.
Why “Brand Awareness” must play by the laws of ROI like any other form of advertising.
In 2017, when Cheers was officially launched, my management team and I became professionals at digital advertising — specifically Facebook, Google, and Amazon. Of these, Facebook has always been the biggest.
With the rollout of iOS 14–15, the success of Facebook for brands has started to decline. The new privacy rules by Apple caused Facebook’s algorithm and targeting capabilities to lose something that it used to send the perfect ad to the perfect user at the perfect time. We have run these channels at impressive scale and quickly built a name for ourselves as experts in the space, often working with other executive teams who were spending $10m+ a year (sometimes $100m+) on Facebook alone. I personally know one guy that has spent over $1b on FB ads over the past few years.
Recently, we have begun exploring all kinds of other channels: TV, Radio, Influencers, Podcasts, Billboards, PR, Print, etc.
While some of the publishers within these channels have been working well for us, anytime that a channel doesn’t, the publisher or the agency representing us has a range of excuses:
- “Oh, you guys are performance marketers. You can’t use those rules for marketing that is for brand awareness.”
- “If you’re looking to get an ROI from [XYZ form of advertising], you’re thinking about [XYZ form of advertising] all wrong.”
- “You can’t put a price tag on brand awareness. It gets people talking. It creates a ‘buzz’. Its value is intangible.”
Seriously? The value of snake oil is also intangible. At the end of the day, you have to measure the results or else it’s complete foolishness.
ROI simply stands for “return on investment”. In business, every dollar spent is an investment. Whether that be office space, salaries, team bonding events, taxes (yes, even taxes are an investment — into not being shut down), R&D, insurance, or marketing.
When it comes to advertising, every dollar spent must come back or else it’s gone forever. If the ROI is less than 1x, then only a portion comes back, and then you have less money to spend than you originally started with. At the heart of financial discipline is an unwavering commitment to ROI — it’s not greed, it’s just the laws of money, no different than the laws of physics.
There’s a saying in the aviation world that’s fitting here: “There are old pilots. And there are bold pilots. But there aren’t any old, bold pilots.”
Like a pilot, you either respect the laws of physics or die in a fiery burn. You’re not “conservative” if you follow the laws of physics—you’re rational. The same goes for the laws of money. The laws are there, and you can respect them or not, but they always win in the end.
This article is meant to be a rebuttal of the idea that you “shouldn’t measure ROI in brand awareness advertising.”
In the above Excel model, you can see an extremely simplified business DTC CPG business. The fictional business above doesn’t have to worry about cash flow or overhead — such as buying inventory, waiting for LTVs (total gross profit a customer pays over their multi-year lifetime) to pay out, taxes, or even pay its employees!
The business has landed margins of 50% — which is pretty typical. It has $1m of total money in the bank. At the top, you can see “ROAS”, which stands for “Return on Adspend”. This is simply the percent of money that when spent, ends up being returned. For example: If you spend $1 and get back $.50, that’s a ROAS of 50%. But if you spend $1 and get $2 back, then that’s a ROAS of 200%.
ROI is the same thing, but with the margin deducted. So if you sell $4 worth of product, with 50% landed margins, then you make $2 in gross profit. And then you have to subtract the marketing too: If you spent $4 and got back $4 (100% ROAS), then you only returned $2 after subtracting margin. So $4 becomes $2, which would be an ROI of .5x.
In a good business, you typically have to have absolute ROIs of 3x+ on advertising. This means that if you have 50% landed margins and spend $100, then you have an absolute ROAS of 600%, so it creates $600 in revenue, and then you subtract the margin cost — which is half, or $300, meaning that you “profited” $300 in total from the advertising once the customer repeats for a number of years.
This then sounds like a gravy train, until you realize that you still have pay everyone’s salaries, pay for office space, pay insurance, web services, warehouse rent, lawyers, and taxes. Not to mention… you have to worry about cashflow and making sure you’re not recycling capital slower than you’re spending it!
When you read that 9/10 businesses fail (statistics show it’s actually closer to 7/10)… it makes sense, because getting any business past that of a small business with a few part-time employees (such as a coffee shop, t-shirt printer, etc.) is really freaking hard. Even with millions of dollars in venture capital funding most businesses fail. Math is just not in your favor.
I come from a family than ran small businesses of less than $1m in revenue and less than 5 full-time employees — and even those are really freaking hard.
In our fictional business, we don’t have to worry about cashflow — as if time was infinite and the time-value of money was free. Even in this fairy land you will see from the Excel model that if capital doesn’t return itself — or “recycle”, as I often call it, you don’t have much capital that you can spend at all.
- $1m spent at a 10% ROAS only recycles 4 times — meaning in total you can only spend $1.05m before you go bankrupt.
- $1m spent at a 50% ROAS only recycles 9 times — meaning in total you can only spend $1.33m before you go bankrupt.
- $1m spent at a 100% ROAS only recycles 17 times — meaning in total you can only spend $2m before you go bankrupt.
- $1m spent at a 150% ROAS only recycles 41 times — meaning total you can only spend $4m before you go bankrupt.
It isn’t until we get to $1m spent at 200% ROAS that we “break even” on this fictional business. The problem with this is that this business lives in fairy land, as most businesses have to pay hefty overheads — employees, insurance, leases, taxes, lawsuits, etc. Realistically, you can’t even stay in business without at least 300% ROAS — and you likely won’t have the cashflow to grow using internal sources of cash without about 400% in ROAS unless you find ways to be extremely efficient with the General & Administrative (G&A) bucket of the business (i.e., overhead) proportional to revenue.
So, what does all this mean? Well, it means that any dollar spent on “brand awareness” must still generate a positive ROI or else the capital depletes itself and you won’t have any money left to spend on brand awareness!
This should be obvious. And it may seem like I have belabored this point. But I see this mistake made every single day by supposedly intelligent people. Ivy League grads, MBAs, you name it.
Why do they make this mistake? Giving the benefit of the doubt, I believe it’s because they think that they can do something to make the math work at a later date — such as getting rid of corporate bloat, increasing LTVs, making advertising more efficient, etc.
The problem here is that they end up not being able to change these things by enough to make their business viable. In fact, many of these metrics often get worse the longer a business runs — especially if there are not diehard ROI focused management teams at the helm.
That, or maybe they were playing a game of “funny money”, where they were able to get investors to invest at valuations based on metrics that didn’t make fundamental sense, such as multiples on revenue by looking at growth rate without looking at potential long-term EBITDA power. Or, by gambling that retail investors (people without as much knowledge as professional investors) will invest in an IPO of a company they like, without looking deeply at the financials, such as the case with Allbirds or Oatly—both of which will eventually have problems… but maybe not before insiders are able to get enough money out.
In these speculative games of “funny money”, management and investors may make money in the short-term if the timing is impeccable and you get some luck, but at some point a reckoning always comes.
Therefore, why not try to build businesses of fundamental value? Something that will stand the test of time? These are real people buying stock in your company.
There’s one story out there about brand awareness that tops all the others: Casper.
Casper has incredible brand awareness. You’re not going to find many people that don’t know of Casper mattresses—they were on every podcast, TV channel, influencer account, billboard, and Instagram feed for years. So they should be successful, right? Well, Casper has spent more money than its total market cap is even worth today.
What does that mean? It means that the business has spent more money than it is even worth! And that’s not even considering the opportunity cost of if the money had been invested elsewhere.
In other words, Casper would be more valuable of a company if it had never existed at all. Hundreds of millions of dollars wasted and hundreds of thousands of work hours down the drain. Imagine working for a decade only to see that you destroyed more value than you created.
Below is an excerpt from a Medium article outlining learnings from Casper’s IPO filing — which as you guessed, was a disaster.
It appears that Casper had a ROAS in their IPO heyday of 300% on their adspend, and an ROI of 1.5x once you deduct the margin. While this could potentially work if the company was run by robots — when you add the costs of running a business, such as salaries, office space, insurance, legal compliance, etc., you can see how this business isn’t even close to being fundamentally viable.
To fix this problem, Casper would have to do some major surgery, such as by figuring out how to run the business with only 1/4th of its current staff without having any loss in revenue or efficiency.
I don’t think there’s many executive teams that could pull that off, or would even want to try. Not all ships are worth repairing.
My final point here is that “brand awareness” still gets put into whatever section that “marketing” is bucketed under of a P&L. Everyone can see how much your marketing translates to revenue—it’s ultimately a line item on a company’s financials.
You can’t in some way try to talk around that by arguing: “Oh, but this is ‘brand awareness’ advertising, and it plays by different rules than ‘performance marketing’”. It is what it is: marketing.
All marketing must be considered in terms of performance marketing. All investments must be measured, and brand awareness is no different.
Counterargument #1: “Brand awareness is a long-term play, you can’t just focus on the short-term ROI.”
Rebuttal: I could understand this point, if there were some guidelines to it. For example, how long term of a play is it before people introduced to a brand through “awareness” become paying customers? 1 month? 3 months? 6 months? Surely it can’t be more than a year or else the cashflow would never make any sense.
Let’s just say it’s a 12 months. If you spent $1m in Q1, then by the time you reach December 31st, 9 months would have passed from the last brand awareness ad and 12 months from the first brand awareness ad. This $1m will now go onto the P&L under marketing… if it hasn’t created at least $2m of “absolute revenue” from new customers, then it was a waste of resources. To be honest, for most businesses, unless it created $4m of absolute customer revenue it would have been a waste of resources due to opportunity cost.
In all of our current tests of influencers and other forms of “awareness media”, 80%+ of the uptick occurs in the first 24 hours. Then by 72 hours it’s completely gone—or at least not measurable whatsoever. So it would be a huge stretch to somehow believe you’re going to be able to magically capitalize on that “awareness” a few quarters in the future.
If 95% of the uptick occurs in the first week, why wouldn’t you just measure that? How much more information do you need? If you’re using conservative estimates and assumptions, then you can tell the success of a marketing campaign within a week.
Counterargument #2: “Brand Awareness doesn’t work by just itself, it has to be paired with performance-based channels such as Facebook.”
Rebuttal: Sure, I could get behind this too. But, piggy backing off of Rebuttal #1, over what time does it take for brand awareness to generate ROI when paired with performance-based channels?
At the end of the day, Customer Acquisition Cost (CAC) is defined as “total marketing spend / total new customers”. At the end of every calendar year, you can measure a yearly CAC. If $1m in brand awareness spend doesn’t reduce the CAC totals across the sum of all of your channels — performance marketing channels included therein — by $1m, then you probably would have been better off just spending those dollars within the performance marketing channels.
At the end of the day, brand awareness spend goes into marketing spend, which then affects your CAC. The question is, does CAC increase or decrease because of this? In almost all cases with bad publishers or agencies, it increases total blended CAC.
Counterargument #3: “A little brand awareness doesn’t work — you have to do a lot of it for it to become successful.”
Rebuttal: First things first, this is what every agency, publisher, or multi-level marketing firm says — ”just put in more money/time”. And by the time you’re convinced it won’t work, you will have already spent crazy amounts of money and they’re rich and you’re poor.
For this idea to be true, at least one of two things would have to be at play:
- There is a threshold effect.
- There is a logarithmic effect.
A threshold effect is kind of like flushing a toilet by adding water to it. You just keep adding water to the front until all the sudden enough pressure develops that it flushes. A similar metaphor would be that of breaking glass — you don’t see any evidence of something happening with more and more pressure until all the sudden your hand goes through the window.
The idea here is that with brand awareness you won’t be able to see a difference until you reach a certain amount of awareness. But this begs two questions:
- How much awareness is necessary? It’s easy to say something like this when you’re the one who collects the bill for the spend.
- Why? Awareness is not a piece of glass where all the sudden there’s enough collective consciousness that people start magically buying your product.
We can actually rebut the threshold effect by rebutting the logarithmic effect.
I can’t recall a single case where business advertising becomes more effective at greater scale — this is the problem with scaling. This is why it’s hard to grow companies! If there wasn’t this inherent problem, scaling would be easy—or at least, a whole lot easier.
Budgets become less effective as you start advertising to the same people too many times or you start advertising to more people — each of which become less likely to purchase than your original early adopters. And, each of those people are less fitting for your brand, and thus customer retention (LTV) is likely to decline — causing an even heavier negative hit on ROI.
The group of friends that I talk with about advertising performance have collectively spent billions of dollars in advertising. I have never heard of anything but a “diminishing ROAS” to be the norm.
At best, you can find a way to keep it stable — if there are still areas of improvement while you’re scaling budgets. But, assuming competent management teams, this eventually caps.
There’s only two ways in which the Law of Diminishing ROAS isn’t true: 1) you weren’t originally reaching the best fitting customers, or 2) you significantly increase how compelling your advertising is—and thus your efficiency in acquiring customers.
(Of course, there’s some other ways too—such as creating more LTV by offering and upselling more products. But you get the point.)
Generally speaking, the natural tendency is for advertising to have diminishing returns with greater scale. The only way to beat this trend is for your ads to continually get better or find more ideal customers. In practice, this constant improvement leads to a more stable relationship between marketing efficiency and scale.
The only possible explanation for a threshold effect would be that of advertising frequency. This may end up having some sort of bell curve and could function a little like a threshold effect.
The idea here being that impression frequency of 1–2 might not close the deal for some products, but 4–5 may. And then once you get past about 5x impressions, the efficiency of more and more impressions goes down. For every product or brand this could be different.
In theory, this makes sense. But in practice, at least with sub-$100 products, this does not seem to be the true, as is the case with most the businesses I talk to.
That said, there’s no need to debate this for your company, you can figure out whether this is true for your business or not by defining a target group of people and then measuring the affect of different amounts of impressions on the revenue from that group of people. You could do this with a few influencers that share a large overlap in their audiences, you could pick a finite FB target audience, or your could do it by location — such as focusing on a particular city or zip code.
If more impression frequency leads to more sales — then great, see how far you can take it before it tapers off! If it doesn’t, then you have your answer that for your product/service, impression frequency will typically be at odds with ROI.
As a rule, increased frequency at a certain point will always result in diminishing ROAS. More typically does not equal better. And thus, the idea that you “haven’t spent enough” is bad logic.
Counter Argument #4: “Revenue and social media stats are proof that it’s working!”
Rebuttal: If you have ever taken a long car trip, you have probably seen billboards that say: “Does advertising work? Just did! Call 123–456–7890 to lease this billboard.”
Sure. It may work in the sense that I looked up and read the billboard. But that is the wrong definition of “work”. For it to actually “work”, the billboard would have to drive a positive ROI for the company on whatever it is paying to advertise. If the billboard cost $1 a month, then yes, it’s probably “working”. But if the billboard cost $1,000,000,000 a month, then no, it is probably not “working”.
At the end of the day, ROAS & ROI are PRICE dependent. Brand awareness-style advertising may work if the price is low enough, but if priced to high, then there’s no potential ROI as it has been priced out.
I have a friend that works in one of our warehouses. One day an additional $10k of orders came through and at the end of his shift he called me all excited: “Dude, I don’t know what you guys did, but we had a huge bump in orders today. What a success!” Unfortunately, I had to reply to him: “Yea, but we paid $25k for the advertisement, and sales are already tapering off, so ultimately we will lose a ton of money.”
If we had been able to buy the ad at $5k, then it would have been a success. But at $25k, it was a disaster. At the end of the day, advertising “works” or not based on price.
Management teams have to take hard looks at the ROI of their advertising channels. I believe that many marketing teams opt not to do this, because to do so would reveal that they are performing poorly, and then they might feel that their jobs are at risk. The same goes for marketing agencies.
(Though any good management team would recognize this as the marketing team actually knowing what their job is and credit them for the analysis and honesty. You can’t fix something if you don’t admit it’s broken.)
All advertising will end up working if the price becomes low enough. And all advertising will stop working if the price becomes high enough. The problem is not with the form of advertising, but the price publishers want you to pay for it. At the end of the day, advertising “works” or not based on price.
Advertising is ultimately a price dependent activity, and whether it delivers a positive ROI is based on price.
Counterargument #5: “If XYZ Brand is doing it, then it must be working!”
There’s two problems with using this to justify a business decision:
- It is a big assumption that the advertising is in fact working—many companies waste much of their advertising dollars (e.g., Casper). And thinking this way is a clear case of “the institutional imperative”.
- Not all companies are the same. For example, luxury goods companies have far more gross margin than commodity companies. Therefore, their ability for ads to actually “work” is highly relative. (E.g., How many ads do you see for perfume vs broccoli?)
Regarding 1: The advertising might not actually be working.
In 1989, Warren Buffett taught in his annual letter to the shareholders of Berkshire Hathaway something which would end up being known as “the institutional imperative”. He said:
“My most surprising discovery: the overwhelming importance in business of an unseen force that we might call ‘the institutional imperative.’ In business school, I was given no hint of the imperative’s existence and I did not intuitively understand it when I entered the business world. I thought then that decent, intelligent, and experienced managers would automatically make rational business decisions. But I learned over time that isn’t so. Instead, rationality frequently wilts when the institutional imperative comes into play.”
In giving examples of this imperative, Buffett states:
“The behavior of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated [by management teams].”
He finishes the thought with:
“Institutional dynamics, not venality or stupidity, set businesses on these courses, which are too often misguided. After making some expensive mistakes because I ignored the power of the imperative, I have tried to organize and manage Berkshire in ways that minimize its influence. Furthermore, Charlie and I have attempted to concentrate our investments in companies that appear alert to the problem.”
In other words, executives fall into peer pressure and often simply do what others are doing without giving it their own independent thought. The institutional imperative is no different than a child thinking it’s ok to eat Tide Pods because “everyone else is doing it”. The only difference is that the mistake is made by executives in charges of millions of dollars rather than children.
I’m not proud to admit it, but I myself have made the mistake of the institutional imperative. Early in my my tenure as CEO of Cheers, I fell prey to this phenomenon and drank the “startup” Kool-aid of my time.
When Casper was private, no one knew how bad its financials really were. Because their ads were everywhere and investors kept pouring money into it, everyone on the outside thought that Casper’s ads must have been working and that the brand was a success. Why else would they be spending that kind of money on all these different forms of advertising if it wasn’t working?
Many entrepreneurs then fell for the same trap “because Casper was doing it”. Everyone started copying Casper — using the same design firm, doing the same style of ads, etc. I myself let Casper’s apparent success influence some of my decision making.
And yes, we lost money on those decisions. It wasn’t until the IPO that everyone got a lens into how crappy their business truly was.
I had always admired Casper before their IPO. I even bought one of their beds because “I wanted to sleep on success”.
When I read through their S-1, I felt physically disgusted. How could any management team run such a bad business? And how could investors put money into it? Did any of these people actually care? How could no one see what was happening? I have had the same response to many other companies. Such as WeWork.
Giving these people the benefit of the doubt, it must have been a game of funny money — get an acquisition done before you need money from the public markets and risking them call your bluff. But this is called speculation, not investing. And thus, if these investors actually knew what they were doing, they were taking a gamble of speculation that turned out poorly for them.
Casper is ultimately an example of why you can’t assume that some form of advertising is working for a company just because other companies are doing it. For example, there are a lot of companies that had huge brand awareness that ended in catastrophic failure. Pets.com, Smile Direct Club, Fab.com, Blue Apron, etc.
Regarding 2:
On the other hand, there are some REALLY great businesses out there. These businesses often get to play by different rules than the vast majority of other businesses.
In other words, what works for some companies, might not work for other companies.
As a hobby, I love to read through public companies’ finances and reports and try to reverse engineer their businesses to make sense of them. I have seen businesses with massive LTVs that thereby allow for large CACs.
These businesses are often so good that they can afford to do some forms of advertising than have low ROAS compared to other areas of advertising, but because their business is so efficient (freakish margins, high LTVs, great conversion rates, etc.) they can use these forms of advertising and still be profitable. They can do some forms of advertising that won’t work for most other businesses.
These business are far and few between. Most of them are the best of the best private companies or are already strong publicly traded companies.
In 2019, Estée Lauder spent $994m in marketing. Estée Lauder is now reportedly spending 75% of its marketing budget on influencer marketing — i.e., ~$750m a year on this type of brand awareness advertising.
So what’s happening here? Well, for starters, we have to point out that Estée Lauder has a cumulative gross margin of 77% across all of its brands! Assuming that retailers are getting 50% margin, and distributors are getting a 25% markup — both of which are typical, that means that for every $50 of product that a consumer buys of Estée Lauder products at a store, Estée Lauder is producing it for about $4. Those are freakish margins that can afford huge amounts of marketing spend.
In other words, they have the ability to spend FAR MORE on advertising than most companies. This means that influencer marketing might actually be working for Estée Lauder.
However, as we have discussed in Point 1, it’s impossible for us outsiders to know if this is actually working for them. The famous department store mogul John Wanamaker — who would have been worth about $1.5b today — has a famous quote: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” In fact, many insiders don’t even know if the advertising is working for them!
Thus, there is a very real chance that Estée Lauder’s spend on influencer marketing is simply less wasteful than the other awareness forms of advertising that they were using before. It could be the case that Estée Lauder could cut a significant portion of its advertising and STILL see revenues increase.
At the end of the day, the ROI of different forms of advertising is relative to the company. Something that may work for Estée Lauder with it’s 77% gross margins might not work for other brands with 50% gross margins.
The problem is that the Estée Lauders of the world can drive up the demand for advertising and price out other brands who do not have such incredible margins. The same could be said for overfunded startups who have no concern for price or ROI — both of which often driving up the costs of different forms of advertising beyond what they are intrinsically worth and thus create a bubble.
Wise executive teams are sometimes forced to the sidelines when acquisition markets are too hot to be able to make profitable acquisitions of companies. Advertising is no different — sometimes the best course of action is to do nothing and wait and find some other place to spend your money. If price is too high, then why pay it?
Who could forget when Citi’s ex-CEO, Chuck Prince, famously said: “As long as the music is playing, you’ve got to get up and dance” in regards to funding leverage buyouts before the global financial crisis. The result of this logic: Citi collapsed and had to be bailed by the government with a record breaking $476b.
The music is playing in the area of “brand awareness” — and many brands are dancing. But the song sucks, so there’s nothing wrong with sitting a song out or attending a different party.
Counterargument #6: “Well, if you have the budget, why not spend it on brand awareness?”
Rebuttal: Almost every single time I or someone on my team speaks with an influencer, an agency, or any sort of publisher, the conversation typically starts with “what your max budget for this advertising?” Then, miraculously, somehow the pricing always comes back at the top of the max budget.
Parkinson’s law is the adage that “work expands so as to fill the time available for its completion.” Well, this adage extends past time to budgets. Among many brand awareness providers, price always expands to take up all of the available budget of the brand.
I recently had drinks with a friend of a friend that got into talent management at the very beginning of influencer marketing. Being well connected, he was able to get many of these famous people to be under his wing early on, and then the referrals started snowballing as more and more of them got into influencer marketing through the years. He’s slated to earn north of $20m this year alone. That’s $100m+ in influencer marketing spend through his clients this year.
He told me the biggest tool in the trade: “We always know when someone is spending someone else’s money.”
He said that when a well-funded startup or major corporation approaches them, they know how much they can get away with charging for each influencer without them batting an eye. His whole goal is to get as much of a share of a brand’s marketing budget each year as possible. Because these brand managers are spending other people’s money, they often don’t care to measure the efficacy of the advertising.
Why would someone not look into the ROI of advertising? Likely because their job depends on not looking into it!
If you’re the CMO of a major brand, are you keen to admit that you wasted $125m this year? Hell no, you’ve reached the top of your career, and you’re not about to risk it by pointing out that half of your marketing spend this year didn’t appear to do anything. You’re not going to open that can of worms. Looking doesn’t pay. No, you’re just going to say: “We invested heavily into brand awareness.”
As Upton Sinclair once said: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
For what’s it worth, when I asked this friend of a friend straight up whether he believes that his clients drive more value than they cost, he replied: “I believe that the brands believe they do—and that’s all that matters for me and my clients.”
At the end of the day, the idea of having “budgets” when it comes to marketing is completely misguided. Marketing is an investment, not just an expense.
For example, if you sold digital e-books and found some form of advertising that was returning an ROI of 10x, you shouldn’t budget… you should spend as much as possible! You would be misguided to let a budget hold you back from constantly turning $1 into $10.
And vice versa, if you’re seeing an ROI of .25x—i.e., turning $1 into $0.25, you can’t just keep spending because you “have the budget”. Unless you believe that you can find a way to improve this by spending some more, you should cease spending this money as soon as possible. You would be misguided from letting an available budget make you think it was ok to keep spending.
At the end of the day, marketing has to be seen like any other investment—an analysis of ROI. And then scaled up and down from there. It should never be budget based, such as “15% of revenue” or some other completely arbitrary line in the sand.
Management should allocate capital based on the rate of returns and risk profiles of different advertising campaigns. If there isn’t any form of advertising that is currently generating a compelling return, there’s nothing wrong with saving it for a period of time in the future when the advertising ROI will be better, using it to invest into new channels or products, acquiring a new business, or using the capital for something else. And if you don’t believe you can generate a positive ROI from any of those activities, consider paying down debt, issuing dividends, or buying back stock.
So, how do you actually increase awareness?
Brand awareness is a good thing. The more people that know your brand, the more likely they are to convert into paying customers.
So, this begs the question? How do you get more awareness? In this article, the answer should be self evident, you can’t just spend on brand awareness based on a budget, because if the capital doesn’t recycle by more than you spent, then there’s a small amount of finite money that you can actually spend, and thus you don’t actually get the awareness you set out to create!
In our fictional business above with $1m and 50% landed margins, even 150% absolute ROAS—i.e., spend $1 in ads and ultimately get back $1.50 in revenue—would only lead to the ability to spend $4m in ads before going bankrupt.
If you showed a ROAS of 150% to most brand awareness publishers though… they’d be thrilled. Most of the time, these publishers are excited to see any data at all. Brand awareness agencies would brag to the moon if they produced a positive ROAS like this.
And therein lies the problem… this is why you will almost never see a publisher or influencer work on commission rather than up-front fees.
$4m of brand awareness is a drop in the bucket. You want to be able to spend $40m. Or $400m. Or in the case of Estée Lauder, $1b per year! These are the numbers it takes to become a “household name”.
Therefore, the only way to actually scale brand awareness is by finding advertising that is fundamentally viable, recycles itself through positive ROI, and allows you to keep increasing your spend on marketing. The brand awareness will take care of itself if you keep a disciplined focus on maintaining a positive ROI on all forms of advertising.
