I’m an investor and I believe certain concepts within investing apply to all areas of business and life. Today, I want to discuss one of my absolute favorite investing concepts and how it applies to digital marketing. Let’s talk about dollar cost averaging!
I’ll illustrate via example… Let’s say you’ve identified a stock or investment that you want to own. Let’s say you also have a fixed amount of money to invest. Rather than taking that lump sum of money and buying 100% of your shares outright, dollar cost averaging says you should average in over time, on a fixed schedule. Maybe you buy 10% per month for the next ten months. After ten months, you are 100% invested. Why is this strategy so great? While it is easy to identify amazing investments, it is far more difficult to time the market. Since you don’t know where the market is heading, you will likely acquire your investment at a superior weighted average price by averaging in over time.
I believe this same philosophy is incredibly important in digital marketing and business overall. Let’s explore a few use cases…
Case 1: Dollar Cost Averaging Budget Allocation In Seasonal Businesses
If your business is linear with little seasonality, this one is a no-brainer. You’re always going to be dollar cost averaging over time. What about the seasonal business, however, the highly polarized business that experiences the majority of sales during a seasonal spike? Thanks to the wonders of retargeting, I’m a fan of dollar cost averaging as much as possible. Start investing marketing dollars early, building leads. When you leave all of your marketing to a fixed number of days, you create a lot of risk for your company. If you can start building leads and nurturing early, you mitigate risk. Even though you start advertising early, you don’t need to close those sales early. You do, however, need to capture leads and have a mechanism for closing them later (email and retargeting).
Case 2: Dollar Cost Averaging New Hires
These days, digital marketing is an integrated team sport. Teams typically span internally employees within Marketing, internal employees on closely related teams (such as Product), consultants, advisors, and partners. Hiring a new team member requires serious effort and time, both on your part and the employee’s part. Have budget for hiring a large team? Rather than hiring everyone at once, I’m a huge fan of smoothing the start dates over time. That way, you have time to invest in your operations and new employee training, without spreading yourself too thin on either front.
Case 3: Dollar Cost Averaging New Search Engine Marketing Keywords
My roots are in PPC, so I had to do a case about paid search. I’m always generating new keywords. I always generate far more keywords than I can test in a timely fashion. In the short-run, testing can be really expensive and hurt overall margins. In the long-run, it’s always a winner because I discover the true value of each keyword and bid appropriately. As a strategy for mitigating short-term risk and smoothing margins, I’m a fan of dollar cost averaging. Take your test budget and spread it over time. Test a few new keywords each and every day. Rotate new keywords in as you rotate old ones out (and/or bid old ones accurately).
Case 4: Dollar Cost Averaging Your Education and Growth
I just rolled out my Digital Marketing and Business Quotes. One of my favorites is, "Invest in yourself. Carve out the time. Nobody else will." I also recently wrote a blog post called An App A Week where I challenge the reader to thoroughly learn a brand new app each week, expanding their knowledge.
When you work full-time, it’s difficult to have any time left over for your own education and growth. This is precisely where dollar cost averaging enters the scene. Invest a little bit of time each and every day and your investment will compound. If you can’t afford to fall behind in your work, you can still learn! Averaging small amounts of time will compound into great long-term results!
Case 5: Dollar Cost Averaging Display Advertising
Back in the day, you could not dollar cost average display buys. You would pre-negotiate inventory on major publishers like Yahoo!, spending your entire investment in a matter of hours. Don’t get me wrong, I absolutely love homepage takeovers, and just did a video on the PPC Ian Digital Marketing Academy about this very subject:
(Big thanks to Rocket Clicks Digital Marketing Agency for sponsoring my Digital Marketing Academy.)
That being said, I also recommend smoothing your display advertising investment these days, because you can. Programmatic advertising opens doors that were never possible in the past. Rather than starting with the big, lump sum investments, start with programmatic. Let programmatic build into the bigger buys over time. Mitigate your risk!
Next time you have a large amount of money to invest in digital marketing or business, consider the dollar cost averaging strategy instead of lump sum investment. In which ways do you dollar cost average?
Images of Dollars © PPCIan.com