Financial Planning

Originally sent out: 14/11/24

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In the past week, all I’ve done is talk numbers and financial forecasting.

Why, you ask?

Well there are a number of reasons:

• Some of our clients are entering peak (Black Friday / Christmas).
• I’m working with several of our clients planning their ad budgets for 2025.
• I’m talking to numerous prospective clients, and the conversation is always centred around the financials.

Add to this the recent budget by the new government and it’s felt like a week of nothing but numbers.

It reminded me of something that I’ve become so used to, I take it for granted.

Good financial planning is vital when it comes to what we do.

I was on an industry panel this week in London and I shared a simple way for any business to approach financial planning for their paid media, which I thought I’d share it with you as well.

My philosophy is simple: When working out your ad budgets, always start with the end in mind.

Here are the steps to take (along with a hypothetical scenario so it’s easier to understand):

1. Check what your current sales/leads are (look at last month, last quarter, whatever is most relevant).

Let’s say our revenue was £300k last month.

2. Now you need to understand the proportion of those sales/leads that was generated by paid media ads in the previous period (use GA4 or whatever tracking tool you use to determine this).

Let’s say 30% (so £90k in our scenario) of our sales came from (was attributed to) paid media ads.

3. Then calculate what your total ad spend was in the previous period to generate those sales/leads.

Let’s say we spent £20k on paid media to generate that £90k. That means a 4.5 x return on our ad spend.

Now we know the past and the present, we can properly plan for the future.

4. Next, establish your sales/leads target for the given period (be that the next month, quarter, specific campaign, etc.).

Let’s say our next campaign target is £500k sales over the Black Friday period.

5. Forecast how your channel reliance is going to change in the next month, quarter or campaign period (do we suspect paid media will continue to contribute around 30% or significantly change and if so how?).

Let’s assume that half of that £200k additional sales will come from paid ads, while the other half will come from increased email marketing and organic sales.

To hit £500k total sales, the paid ads needs to contribute at least £190k of that revenue (£190k divided by a ROAS of 4.5).

We can quickly calculate that our ad budget should be around £42-£43k, so more than double the previous ad spend, which is needed to ensure that £500k target is met (and assuming the other non paid channels play their part).

That’s a very simplistic way to calculate it, naturally there are nuances to it and I haven’t factored in business margins; diminishing returns, etc, but it should give you the basic idea.

What I’m saying is: Don’t guess. Plan and calculate.

We’re in the middle of peak trading for a number of our clients and we’re confident they’ll all meet their financial targets because we’ve run the sums ahead of time.

• We have the required budgets.
• We know our anticipated return on ad spend.
• We understand the ‘role’ paid media ads play.

We’ve removed the guesswork.

We’ve done the financial planning and I want to encourage you to do the same if you haven’t already.

Use this simple yet methodical approach to better understand your numbers and come up with a clear financial plan.

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