James likes to say that advertising is an act of faith. That’s generally true, and it’s a concept that I rail against whenever I speak to marketers. The ad industry of the twentieth century was built on a house of sand: immeasurability. Most of the time, most marketers failed to measure most of their advertising spend.
How effective is that full page ad in that industry magazine? How many people actually see that billboard? How many people actually pick up and read your brochure? These are questions that, too often, assaulted the faith of ad buyers everywhere.
Of course, all of that changed with the web, where we can measure the cost of every click, every conversion, every customer. It makes the newspaper ads and movie posters seem hilariously antiquated. When we talk to ad reps on behalf of our clients, we’ve always got an exact cost-per-conversion in mind. If they can’t offer services below that cost, we don’t advertise with them.
Seth articulates this idea in a recent post:
If the local bank were offering a sale on dollar bills, ninety cents each, how many would you buy?
Most rational people would say, “I’ll take them all please.” Especially if you had thirty days to pay for them.
So, why, precisely, do you have an ad budget?
We always discourage our clients from undertaking any advertising that they can’t measure. If they’re running offline ad campaigns, we urge them to have a unique call to action (such as a specific URL) so that they can track a campaign’s effectiveness.
Otherwise, they’re operating on faith alone.
DarrenBarefoot.com 
The part of that post (that I coincidentally just finished reading) that most resonated with me was the antiquated notion of a fixed ad budget. Ad budgets need to be flexible to market conditions to be successful in a real-time world.
We used to use the metaphor of a gas pedal on a car to illustrate how a responsive, flexible ad budget works. When things are going well and your cost of customer acquisition is below your threshold, you hit the gas! When you’re above your threshold, you coast and hold back your budget.
For us, the threshold we used was 4% cost of sale. If we could acquire customers for less than 4% of our average total sale (a number that fluctuated slightly seasonally), we acquired as many customers as we could fulfill. Then you either sell out of what you’re selling, run our of customers to acquire or reach your threshold of acquisition costs.
When I tried to instill this methodology into a new company, where they were habituated to buying fixed ad space on a fixed budget, and I showed them the cost savings, they just disputed the numbers. That brought me to give the presentation at CaseCamp that it was faith, not reason, that drove marketing decisions. Here are the speaking notes:
http://www.boxcarmarketing.com/blog/item/how-i-learned-that-marketing-is-a-practice-of-faith-not-reason/
With Google beginning to manage the inventory for radio, print and TV through the same methods used for its CPC ads, I hope we’ll start to see much more responsiveness in advertising spending.
Or we won’t and people will continue to make decisions based on faith, not reason.
Thanks a lot for great insights into flexible ad budget…