This article is part of a four article series, following  The Ultimate Marketing Budget Planning Handbook we published recently. Setting the right budget, and knowing what to do with that budget is important for any marketer regardless of how big or small those pockets might be. 

In advertising, waste refers to time, money or effort that are expended without producing valuable results or outcomes. It encompasses any aspect of a marketing campaign that does not contribute to achieving the desired objectives or generating a return on investment. Yet that being said, in the realm of marketing, “waste” or cutting costs  is an accepted cost of doing business. It is an unspoken, unwritten rule that everyone agrees to. To illustrate why – just look at any average marketing funnel:

• ±1% of users who see an ad will click it.
• ±10% of users who clicked an ad will convert.

This means that an advertiser is “ok” with 99.9% of impressions leading to no further action. Waste is a given. 

Waste but not in vain 

However, as marketing budgets scale, waste often becomes harder to control. Scaling a channel ad spend will increase the marginal costs of conversions given the price elasticity of media, and the law of diminishing returns. 
 

Optimizing marketing spend by reducing waste is an extremely efficient way to “reset” the spend levels, understanding which channels passed the point of diminishing return and are currently at a level yielding negative results (i.e. the unit economics indicate running at a loss). 

In the complex landscape of marketing, every dollar counts. However, it is not uncommon for businesses to continue investing in marketing channels without fully understanding their current effectiveness. Over time, as companies scale their marketing efforts, they often encounter the law of diminishing returns. This economic principle suggests that after a certain point, each additional dollar spent on marketing will yield progressively smaller increases in conversion rates. Eventually, this can lead to negative returns where the cost of acquiring a customer exceeds the revenue generated from that customer, resulting in a loss.

How to optimize your marketing spend

The process is relatively easy  but requires some rigorous steps.

Step 1: Do you have an opportunity to unlock efficiencies ? 

The first step in reducing waste is to assess if there is an opportunity to optimize your marketing spend.
 

This involves a thorough analysis of current ad performance and identifying areas where efficiencies can be unlocked. You can do this by overlaying ad spend against organic and paid results searching for high correlations.If there's a strong correlation, it means that ad spending is heavily influenced by seasonal performance, indicating a significant level of inefficiency in how ad budgets are allocated.

This can also be done for companies with a monthly budget, with the same principle, identifying how much paid advertising results cannibalize results that would have otherwise been reached organically. 
 

You can also test this theory of cannibalization by temporarily pausing your  ad spend. By stopping ad spend for a short period, you can observe if there is a significant drop in performance metrics. This can highlight how much of your ad spend is truly driving incremental results.

Additionally, you can evaluate the correlation between ad spend and seasonality. Understand if certain times of the year yield better results and align your spending to take advantage of these peak periods. This can help in reducing waste during off-peak times.

Step 2: Do you have any channels that have reached a point of saturation ? 

Determine if any of your marketing channels have reached a point of saturation. When a channel is saturated, additional spending yields diminishing returns.
 

Identify significant change points (spend increase or decrease) for any of your channels or meaningful campaigns. Compare the change performance against your hypothesis. This method helps you pinpoint the ideal spending level for each channel. You can also leverage INCRMNTAL to automatically conduct this analysis across all your channels and campaigns.

Once you have factored in saturation (marginal results)  and optimal spend levels for each channel to ensure maximum efficiency you can move on to the final step. 

Step 3:  Utilize the saturation factor and optimal spend level to reallocate budget

• Establish the desired spend or reduction target
• Collect data on cannibalization levels and optimal spend for each channel
• Decrease investment in channels with diminishing returns. You can also check our article about “Cutting the right marketing spend”
• Proceed to align daily expenditures with optimal levels for each channel
• Adjust remaining channel budgets proportionally to meet the target spend, while accommodating outliers or strategically important channels.

Step 4: Don’t Forget to Repeat Systematically

Make this optimization process a regular part of your budget planning. Conduct this evaluation at least once a year to continuously identify and eliminate wasteful spending.
 

Waste is inevitable but understanding it can help you unlock efficiencies

Overall, waste in advertising can hold your brand back from maximizing the efficiency and effectiveness of marketing efforts, ultimately diminishing the return on investment and hindering the achievement of business objectives. By identifying and minimizing waste, advertisers can optimize their campaigns to deliver greater impact and value.

Many companies realized that marketing performance was not trending down following a pause of ad spend (due to different reasons). For example, this was the case for Uber and AirBNB (read more about it here).

At INCRMNTAL, we call this “learning about incrementality the hard way”.

Incrementality is indeed a great way to understand how much of your ad spend is potentially wasted, and given the fact that advertising accepts waste as part of cost of business means that there are always opportunities to increase efficiencies. 

In the end, optimizing marketing spend by reducing waste is not just about cutting costs but about strategically reallocating resources to maximize returns. By systematically resetting spend levels and understanding the diminishing returns of each channel, businesses can ensure sustainable growth and maintain a competitive edge in the market.