Trimming a $48,000 Channel Budget
A subscription company spends $48,000 a month on three channels. Search ads take $20,000 and produce 400 leads and 60 paid conversions. Email takes $12,000 and produces 300 leads and 45 conversions. Print catalog takes $16,000 and produces 100 leads and 5 conversions. The CFO needs a 12% cut to total spend next month. Finance has set two rules: no channel may be funded below $8,000, and no single channel may exceed 50% of the new total. The marketing lead wants to protect brand visibility in print and argues print spend should stay at $16,000. Channel performance has been stable month to month, with no sign of diminishing returns at current spend levels.
1. Compute cost per lead and cost per conversion for each channel. Which channel is weakest on both measures?
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| Channel | Spend | Leads | Conversions | Cost/lead | Cost/conversion |
|---|---|---|---|---|---|
| Search | $20,000 | 400 | 60 | $50.00 | $333.33 |
| $12,000 | 300 | 45 | $40.00 | $266.67 | |
| $16,000 | 100 | 5 | $160.00 | $3,200.00 |
Print is worst on both measures - 3.2× search's cost per lead and roughly 12× email's cost per conversion. Totals: 800 leads, 110 conversions, blended $60 per lead and $436 per conversion.
2. What is the new total budget, and how much must be removed? Given the two finance rules, how much room does each channel actually have to absorb cuts?
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Target and cut:
- New total = $48,000 × 0.88 = $42,240, so $5,760 must come out.
- The 50% ceiling on the new total is 0.50 × $42,240 = $21,120 per channel.
Room to cut, measured down to the $8,000 floor:
- Search: $20,000 − $8,000 = $12,000 of room (but already near its ceiling, so it cannot grow much).
- Email: $12,000 − $8,000 = $4,000 of room.
- Print: $16,000 − $8,000 = $8,000 of room.
Consequence for the marketing lead: print alone can absorb the entire $5,760 - print would go to $10,240 and the other two stay put. Her "keep print at $16,000" position is the single most expensive way to raise $5,760, since it forces cuts in channels that deliver conversions roughly 10–12× more cheaply. Cutting print all the way to the floor instead overshoots by $2,240, which would have to be redeployed rather than banked.
3. Assuming results scale linearly with spend, build the allocation that maximizes projected conversions within the floor and ceiling, and state the projected conversions and leads.
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Conversions per dollar spent:
- Email: 45 / $12,000 = 0.00375
- Search: 60 / $20,000 = 0.00300
- Print: 5 / $16,000 = 0.0003125
Greedy fill, subject to floor $8,000 and ceiling $21,120 (sum = $42,240):
- Fund print at its floor: $8,000 (it is the least productive use of the next dollar).
- Fund email to its ceiling: $21,120 (most productive).
- Search takes the remainder: $42,240 − $8,000 − $21,120 = $13,120, which sits between floor and ceiling. Done.
Projected results:
- Email: $21,120 × 0.00375 = 79.2 conversions; × 0.025 = 528 leads
- Search: $13,120 × 0.003 = 39.4 conversions; × 0.02 = 262.4 leads
- Print: $8,000 × 0.0003125 = 2.5 conversions; × 0.00625 = 50 leads
- Total ≈ 121 conversions and 840 leads, versus 110 and 800 today - more output on 12% less money.
Caveat to state in the memo: the linearity assumption is doing real work here. Email at nearly double its current spend is the least tested part of the plan, and print's contribution to brand recall is not captured by the conversion math.