Strategy
7 min readTherentedandtheowned:awaytosortamarketingbudget
One line down the middle of a spreadsheet explains more than most quarterly reviews.
Take last year's marketing spend and sort it into two columns. On the left, everything that stops producing the moment you stop paying: advertising, sponsored placements, affiliate commission, most agency retainers. On the right, everything that would still be there next year if the budget were frozen tomorrow: pages, templates, photography, the email list, documentation.
In most businesses we look at, the left column is somewhere between eighty and ninety-five per cent of the total. That is not automatically wrong. It is, however, almost never a decision anybody made.
Why the split drifts
Rented spend is easier in every respect. It reports quickly, it scales with a slider, and it produces a number to put in a slide at the end of the month. Owned work reports slowly, needs internal cooperation, and is hard to attribute cleanly even when it is obviously working.
So the ratio drifts, one reasonable decision at a time. Nobody ever proposes becoming dependent on a single ad account. It just happens, in the way that most expensive situations happen: by default rather than by choice.
What the ratio costs
The cost shows up in two ways. The first is obvious: a business that rents all of its reach has no floor. Pause the spend and demand goes to roughly zero, which makes every negotiation with a platform a negotiation you lose.
The second is subtler. Rented channels get more expensive over time, because that is what auctions do. A business with no owned baseline has to keep paying that rising price simply to stay level, and the increase comes straight out of margin.
A more useful target than a ROAS
We tend to suggest a simple, unglamorous goal: move five to ten per cent of next year's budget from the left column to the right, and protect it from being raided when a quarter looks soft. That is enough to build something and small enough that nobody has to be brave.
Then measure the thing that actually matters, which is not the return on that spend in-year. It is what proportion of your demand would still arrive if you switched the advertising off for a month. Almost nobody knows that number. The businesses that do tend to sleep better.
If this describes a situation you are responsible for, a second opinion is the quickest way to find out how much of it applies. Ask us for one.
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