During COVID-19 marketing budgets are either being increased or cut dramatically. Industries like video conferencing, at-home fitness, food delivery, and e-commerce, are seeing increases in demand while industries like travel, real estate, and auto sales are seeing steep declines.
For marketers with slashed budgets, demands for performance become even greater.
How is it possible to increase leads or sales when budgets are cut?
The process for increasing volume while shrinking spend is actually pretty straightforward. When campaigns are budget-constrained, marketers enter a rare environment where bidding down increases volume.
It certainly sounds counter-intuitive and goes against the basic principles of paid marketing, but during a period of budget deficits transitioning to a 'unit cost minimization' strategy pays big dividends.
The math of increasing traffic while decreasing budget
First, we need to make an assumption--one which I've found mostly true in practice and something which Google has said themselves--that conversion rate doesn't materially change depending on your search result position.
Let's assume a budget of $100, an average cost/click of $1 and conversion rate of 5%:
Under normal circumstances our budget would yield 100 clicks and 5 conversions with a $20 cost per conversion.
Next, let's observe the impact of a bid down (all else equals). Here, the budget remains the same, $100:
By decreasing unit costs from $1 to $0.50, traffic doubles from 100 to 200 clicks, conversions double from 5 to 10, while cost per conversion falls by 50%.
These results are fantastic yet expected given the chained effect of bidding down.
But how about situations when budgets are cut during external demand shocks like pandemics and COVID-19?
Let's look at one last example where budget is cut 35%:
With budget being cut 35% from $100 to $65, the marketer needs to respond by cutting unit costs even more. Despite the 35% cut in budget, unit costs decrease $0.25 (50%). Net-net, the account drives even more clicks and conversions with a lower budget.
The key here is ensuring that unit costs or cost/click (CPC) decrease faster than the cut to budget.
Does it work in practice?
Certainly...and I should know! This is a strategy I've pulled off multiple times both as a startup taking on an entrenched industry of competitors as well as a publicly traded company in a battle for supremacy against a well-funded foe.
When this strategy is executed well, don't be surprised when management starts referring to you as the magician or you start hearing comments like "whatever you are doing, please keep doing it."