Strategic Budgeting for User Acquisition
With the start of a new year, marketing professionals are preparing their budget allocations for various areas. The area of paid user acquisition (UA) is key for hitting growth targets for mobile apps, so it’s important to carefully consider how to budget for it effectively.
Let’s take a look at some considerations, practical advice, and key takeaways for coming up with the best possible UA paid media budget for your campaigns.
Key Considerations for UA Budget Planning
Your main concern when budgeting for UA is how much you’re willing to invest in growth in this area. To reach a conclusion, consider these three parameters:
- What You’ll Be Sacrificing. When you choose to invest in UA, you’re not only putting money down on one growth channel – you’re also choosing not to put those resources into other potential areas of business growth, such as product development. A thorough cost-benefit analysis can help you decide to what extent significant investment in UA is the best option for your business budget.
- How Much Appetite You Have for Risk. Every company has to decide what level of risk it is willing to stomach. Your level of risk tolerance will determine how aggressive you’ll be about investing in the uncertain expansion of your user base.
- UA Rationale. There’s a distinct possibility that a budget which satisfies both your risk threshold and your opportunity costs won’t leave you with enough to spend on UA to be effective. Low spend volumes produce small datasets, which in turn make it difficult to reach high user quality levels that drive positive ROAS. To do UA well, you need a large enough data sample that will allow you to learn and optimize activity.
Approaches to UA Budget Planning
After you’ve considered these issues that underpin your UA budget planning, you can choose your preferred budgeting strategy. There are two main approaches:
- Top-down. Top-down budgeting begins with marketing funding decisions at the C-level. The total marketing budget is then broken down into various marketing strategies, including UA. Some companies approach this by setting a reinvestment ratio, with a certain percentage of net revenue funnelled back to fuel growth through more marketing.
- Bottom-up. Bottom-up marketing begins the decision-making with the UA team. They monitor the markets, potential partners, and existing campaigns to make a decision about the UA environment. By combining this with internal growth targets, they produce an efficient target spend level.
Both approaches can be effective ways to come up with a UA budget.
How to Come Up with a Budget
If you take the bottom-up approach to creating a UA budget, you can draw on the knowledge of your UA team to produce a realistic budget estimate. These five steps help ensure that the estimates are reasonable, realistic, and easy to assess:
- Decide on your product and company goals.
- Agree on the parameters for reaching those goals in the upcoming campaign (e.g. demographics, technical requirements, location).
- Draw up a tentative budget.
- Validate your tentative budget against prevailing market conditions and potential media partners.
- Get buy-in for your revised and validated budget while remaining conscious of financial feasibility.
You should always be cautious when drafting a UA budget. Pay careful attention to the actual performance of earlier UA campaigns and use them to optimize upcoming campaigns for greater effectiveness.
Step-By-Step Guide to Using the UA Budget Template
Feel free to check out this simple and easy template for reaching a top line budget figure: https://mercury.black/uabudgeting/
The template helps you decide on the necessary budget for reaching a given growth rate when taking UA rationale into account.
- Begin with the target unit cost (CPA) of the action you wish to achieve through your campaign (for example, day 1 retention).
- Add the conversion rate from new installs (for example, day 1 retention rate of 40%).
- Enter the total number of days for the campaign (for example, 90 days).
- Input a sampling rule. This refers to the number of direct actions you want to produce each day. There are a few different ways to calculate this number, but as a general rule you should input at least 100.
- Add the campaign parameters. This means defining your desired campaign structure through technical, audience, and partner specifications. This template assumes that your budget will be distributed evenly across all your campaign parameters, so the more detailed your campaign specification, the higher your total required budget.
Key Principles for Planning a UA Budget
When you set out to plan your UA budget, you should remember these three key principles:
- Arrive at the right budgeting approach for your organization and growth goals.
- Come up with a reasonable estimate that is grounded in caution.
- Be rigorous in validating your potential budget against existing market conditions.
By continually learning and iterating your budgeting practice, you’ll be able to deliver sustained, effective UA growth that contributes to your overall business growth.