The paid media landscape is complex. New channels are constantly emerging, and existing ones are evolving. As more competitors enter the market and audiences tap out within channels, customer acquisition costs (CAC) continue to rise.
That's where channel diversification can help. But diversifying paid ad spend across channels to achieve the desired level of revenue growth is both art and science. This post describes a methodology to understand cross-channel performance and make channel investment decisions through marketing science.
Let's dig in!
Why use OutPoint?
OutPoint uses data science and channel-level API integrations to forecast optimal paid media mix and improve return on marketing investments.
OutPoint’s models are informed by years of experimentation at high-growth consumer startups like Borrowell and Properly, and econometric modelling work inside the eCommerce economics group at Amazon.
By partnering with OutPoint, you can level-up the 'science' behind an optimal marketing mix and accelerate growth with confidence.
Here's how it works:
First, OutPoint integrates with your existing ad spend and analytics data to deliver a forward-looking model to evaluate marginal returns by channel.
Learn more about Marginal CAC vs. Average CAC
Then, OutPoint's cross-channel marketing mix model delivers a balanced portfolio allocation, showing recommended spend levels for your current channels (based on historical data) and simulated new channel investments (based on proprietary data).
OutPoint's marketing mix model recommendations rely upon two critical concepts and assumptions:
- Marginal Returns by Channel:
Every paid channel has a saturation point beyond which further investment in the channel yields minimal incremental benefit (i.e., there is a mathematical point where Marginal CAC reaches diminishing and then negative returns and you should re-allocate spend before this point)
2. Portfolio Optimization by Channel:
Optimal decisions for how to allocate spend and where to invest your next marketing dollar depend on where your brand sits on the marginal return curves across the macro landscape of existing channels and expected performance on new channels.
You can view each channel's marginal return and LTV:CAC curves in an easy to understand dashboard that integrates with your existing marketing stack.
OutPoint's cross-channel marginal return curve model is the foundation for recommendations for the optimal mix of marketing spend and the relative impact of each marketing channel on revenue.
If you under-allocate on high-performing channels you risk missing valuable customer audiences. Over-allocate and you can waste funds on channels that don’t produce marginal results.
- DTC X, a lifestyle clothing brand, has an in-house marketing team spending approximately $100,000 per month on Facebook ads and $50,000 per month on Google Ads.
- OutPoint's model reveals that only $80,000 of the Facebook spend and $40,000 of the Google ads spend is profitable on a marginal returns basis.
- OutPoint then recommends and simulates a 20-30% improvement in overall performance via a reallocation of $20,000 from Facebook to a new channel (for example, TikTok) and $10,000 from Google to a new channel (for example, Bing).
“With these data-driven insights, companies can often maintain their existing budgets yet achieve improvements of 10% to 30% (sometimes more) in marketing performance.” - Wes Nichols’ Harvard Business Review article on Media Mix Modelling
By re-allocating dollars to levels where the marginal return on investment is optimal across existing and newly recommended channels, OutPoint's DTC clients can achieve the efficient frontier for their marketing investments.
[Coming Soon] OutPoint's API-driven ad buying technology helps you seamlessly onboard and activate new digital and offline channels
OutPoint brings hands-on advice, benchmarks, research methods, and analytical frameworks to quickly cut to the core of your growth opportunities.. For a limited time, OutPoint is running pilots with select DTC brands to model optimal marketing mix.
Questions we'll dig into:
- For your existing channels and spend levels, how does LTV:CAC look on a marginal basis? Are you saturating your audiences? By how much?
- How do Marginal returns vary across the landscape of potential channels — i.e., will re-allocation of $$$ to current and/or new channels provide a lift in growth and an improvement in returns?
Sign up here, or email firstname.lastname@example.org if you are interested in learning more.