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Advertising Strategy
During a Recession
March 2020 (Updated May 2022)
Eric Benjamin Seufert
Heracles LLC
PRIVILEGED AND CONFIDENTIAL
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WHO I AM
QuantMar Mobile Dev
Memo
Theseus
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PREVIOUSLY
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AGENDA
PRIVILEGED AND CONFIDENTIAL
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AGENDA
1) WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
2) WHAT HAPPENS TO MY METRICS DURING A RECESSION?
3) DEFENSIVE MEASURES
a) MEASUREMENT
b) COST CONTROL
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WHAT HAPPENS TO ADVERTISING
SPEND DURING A RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO MY METRICS
DURING A RECESSION?
PRIVILEGED AND CONFIDENTIAL
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WHAT HAPPENS TO MY METRICS DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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Given some pre-recession
observed Product LTV
curve...
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WHAT HAPPENS TO MY METRICS DURING A
RECESSION?
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New cohorts might be
observed to monetize at a
lower level than the historical
norm during a recession...
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WHAT HAPPENS TO MY METRICS DURING A
RECESSION?
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A marketing team’s first
instinct might be to simply
use the general model (curve
parameters) to project the
new LTV values by using a
general reduction rate (in this
case, 0.7: the new curve is
0.7x the old curve because
the initial monetization values
for the new curve are 0.7 the
same time-based values of
the old curve)...
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WHAT HAPPENS TO MY METRICS DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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But that assumes the curve
retains the same shape --
what if it doesn’t? In this
case, the new monetization
curve reaches as asymptote
(flattens out) much earlier
than the old curve...
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WHAT HAPPENS TO MY METRICS DURING A
RECESSION?
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If the team had simply
reduced the value of the new
curve using a ratio, they
would have overvalued the
traffic by 20%
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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The same is true for
retention:
Take a product with
40%-20-10-5 retention rates
at days 1, 7, 30, 90...
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
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60 days of cohorts of 1000
DNU produces a DAU base
of just over 8500 at Day 60...
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
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Reduce retention rates to 35,
15, 5, 1 for Days 1, 7, 30,
90….
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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The same 60 1000-DNU
cohorts produce overall DAU
at Day 60 to 5800...
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
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- But these decreases aren’t likely to happen at the same point in
the curve for all cohorts, they are likely to happen all at once!;
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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- But these decreases aren’t likely to happen at the same point in
the curve for all cohorts, they are likely to happen all at once!;
- This means that new cohorts may engage / monetize worse than
old cohorts, but old cohorts may also stop tracking to the model;
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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- But these decreases aren’t likely to happen at the same point in
the curve for all cohorts, they are likely to happen all at once!;
- This means that new cohorts may engage / monetize worse than
old cohorts, but old cohorts may also stop tracking to the model;
- So not only do you need to factor in lower revenues from new
cohorts, but you should factor in lower revenues from existing
cohorts that may have already been projected into your cash flow
model!
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WHAT HAPPENS TO ADVERTISING SPEND DURING A
RECESSION?
PRIVILEGED AND CONFIDENTIAL
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Likewise:
- Cancellation rates may go up;
- Refund rates may go up;
- Organic ratios may change.
All of these assumptions need to be validated in your model!
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DEFENSIVE MEASURES
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MEASUREMENT
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LTV and ROAS are thought of as fundamentally different
approaches to marketing measurement, but in reality they are
merely different risk management techniques:
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MEASUREMENT
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LTV and ROAS are thought of as fundamentally different
approaches to marketing measurement, but in reality they are
merely different risk management techniques:
- LTV: curve fit data and project absolute average user value to
some endpoint;
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MEASUREMENT
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Going back to the earlier
example: the early data
points are used to feed into a
fitted curve, and a projected
90-day LTV is calculated
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MEASUREMENT
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LTV and ROAS are thought of as fundamentally different
approaches to marketing measurement, but in reality they are
merely different risk management techniques:
- LTV: curve fit data and project absolute average user value to
some endpoint;
- ROAS: start from a low bid that produces 100% payback and
incrementally increase that bid until the maximum payback
timeline is reached that is acceptable;
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MEASUREMENT
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The LTV approach by definition incurs more risk of loss; the
ROAS approach by definition incurs more risk of lost
opportunity.
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MEASUREMENT
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The LTV approach by definition incurs more risk of loss; the
ROAS approach by definition incurs more risk of lost
opportunity.
In a recession, an advertiser should prefer the latter risk.
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MEASUREMENT
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Find a bid that produces
reliable 100% payback, as
the cohorts acquired at that
bid continue to age, follow
their monetization curve...
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MEASUREMENT
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Update the bid to match
common monetization levels
and observe those cohorts...
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MEASUREMENT
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Continue to incrementally
update bids in this way as
cohorts age and establish
monetization levels at various
cohort ages. Stop when the
payback window reaches a
maximum acceptable length.
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COST CONTROL
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In growth periods, advertisers are inclined to diversify traffic
sources to ameliorate per-channel prices (via saturation). But
this increases fixed costs.
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COST CONTROL
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In growth periods, advertisers are inclined to diversify traffic
sources to ameliorate per-channel prices (via saturation). But
this increases fixed costs.
In a recession, advertisers should prefer to concentrate their
budget in the channels that deliver the most volume.
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COST CONTROL
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Using the “waterfall” method,
the advertiser ranks channels
by potential traffic volume and
spends as much of its budget
as possible on the
highest-priority channel until
reaching a maximum
acceptable payback window.
Once that threshold is
reached, it allocates budget
to the next channel, and so
on.
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COST CONTROL
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In growth periods, and in periods with easy access to capital,
advertisers are willing to spend against very long payback
timelines so long as acquisition is ultimately profitable.
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COST CONTROL
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In growth periods, and in periods with easy access to capital,
advertisers are willing to spend against very long payback
timelines so long as acquisition is ultimately profitable.
In a recession, when cash is more precious, an advertiser
should prefer shorter payback windows to produce a higher
velocity of cash.
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COST CONTROL
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Given some observed LTV
curve...
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COST CONTROL
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Daily monetization
contribution amounts can be
calculated...
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COST CONTROL
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Which can be aggregated into
expected daily revenue by
adding up daily contribution
amounts from cohorts (in this
case, a projection of 20
cohorts through 180 days)...
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COST CONTROL
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Those revenue contributions can
be compared to cumulative costs
to produce a break-even point at
the aggregated user base level.
The difference here is that cohort
break-even is only considered
once for the cohort, in isolation: in
order to understand cash in versus
cash out, an advertiser must build
a cash flow schedule and find the
break-even point for its marketing
activities.
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COST CONTROL
PRIVILEGED AND CONFIDENTIAL
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More content on this topic:
https://mobiledevmemo.com/ltv-roas-marketing-p-and-l/
https://mobiledevmemo.com/optimizing-campaign-spend-with-the-
blended-same-month-return-metric/
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THANKS!
[email protected]
@eric_seufert
PRIVILEGED AND CONFIDENTIAL
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