2. A Quick Guide to Allocating Budgets Across Your Funnel
- Nitin Agarwal Head of Growth & Revenue, Shopsy by Flipkart
- Arindam Paul Founding Member and CBO, Atomberg
In this snippet, Arindam discusses how to gradually shift budget allocations as a company grows, emphasizing that budget decisions depend on category size and overall business metrics like TACoS.
At Atomberg, we used to do purely performance marketing until we reached about 15 crores a month. However, the fan category is worth 12,000 crores. 15 crores a month is negligible in that context. When we were spending 15 crores a month, Havells didn’t even acknowledge that Atomberg existed.
Your budget allocations also depend on the category size and many other factors. A general rule of thumb should be to gradually shift from performance marketing to brand marketing.
For example, you might start with 100% performance and 0% brand in the first year, then move to 90% performance and 10% brand in the second year. The specific percentages depend on the category and your company’s situation.
However, as a general guideline, if you’re operating at an 80% gross margin, you can spend around 40% of your revenue on marketing.
But this percentage also depends on the category you’re operating in. For instance, if your category has a lower gross margin, such as cosmetics with a 75% gross margin, even profitable brands like HUL may spend only 20% to 30% of their top line on marketing.
The most important overall business media metric is the Total Advertising Cost of Sales (TACoS), which is all media spend divided by all the sales you generate.
Don’t think about how much attribution is happening. It is very difficult. You cannot isolate how much came from Google and how much came from Facebook.
But if your overall, as a percentage of this, is improving (all spends divided by all revenue), if you’re able to do that, then do it.
Nitin explains how to budget across the marketing funnel, focusing early-stage budgets on mid- and lower-funnel activities, with minimal upper-funnel investment until the company has scaled significantly.
A simple way to look at your funnel is that the upper funnel is awareness. The mid-funnel is for a lower-friction outcome, such as a website visit, and the lower funnel is all about conversions.
When budgeting across the funnel at an early stage, you start with the lower funnel and quickly move to the mid-funnel. The upper funnel is not really relevant for early-stage companies.
You can split your budgets 60-40 between the mid and lower funnels, with the mid-funnel receiving 60% of your budget and the lower funnel receiving 40%.
The lower funnel is when somebody converts. We all want the lower funnel, but to strengthen your lower funnel, you need to invest in your mid-funnel. Therefore, about 60:40 is a good thumb rule for mid versus lower.
Lower funnels usually don’t scale beyond 40%. It is a small base of the complete funnel, so it gets done in 40%. You use the remaining 60% to drive visitors, crowd views, and add-to-carts. All this, everything that leads the lead from the landing page or the home page to purchase is mid-funnel.
In the early stages, 0 – 5% of your budget can go to the upper funnel. You invest money into it when you can. Then you forget about it, and the results follow in a 3‑month or 6‑month cycle.
This is because the upper funnel doesn't convert. It is only for brand awareness which is a very long-run outcome. It also requires a lot of money investment.
One benchmark to keep in mind is that you can only start investing, say, upwards of 20 Lacs in the upper funnel without any expectation of conversion outcomes only when your monthly marketing budgets are upwards of 30 – 40 Lacs. This is usually post-series A or B.