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Optimizing advertising spend across multiple locations

Optimizing paid acquisition efforts for a company that has many locations is difficult. Nailing multi-location marketing is important for many businesses, including franchises, manufacturing firms with dealer locations, and chains of service providers. In this post, we examine some best practices for multi-location advertising for an illustrative Doggie Daycare company. You will learn the shortcomings of traditional approaches and be introduced to the DOCS framework for optimizing spend across locations.

Meet Mary, the Director of Marketing at a regional Doggie Daycare brand with 50 locations. Paid acquisition efforts — like search engine marketing and paid social ads — are an important source of lead acquisition for her company. In this post, we consider how Mary should optimize her paid acquisition budget across 50 Doggie Daycare locations. How much budget should she assign to each location? What local marketing factors should she consider when creating the per location budget? How often should that budget split be revisited?

‘Even Stevens’: Why an equal marketing budget split across locations is probably not the right answer

Mary wants to be fair, so her first instinct is to split the budget equally across all locations. After a couple of months of doing this, however, she notices that some locations are driving far more leads. To investigate why, she takes a look at the leads per location (See Table 1), and notices that the cost per lead is significantly better in Location A ($30), than Location B ($38) and especially Location C ($75). Location A & B are both in locations with relatively less competition, whereas Location C is in downtown — where there are a lot of possible customers but a lot of competitors too.

(Note: When doing this in real life, you also may notice certain locations would struggle to meet their monthly spending targets because there aren’t enough people searching for relevant keywords in those areas.)

Table 1: Search Engine Marketing (SEM) Budget & Leads per Location

SEM Budget & Leads per Location

Does that mean she should assign all her budget to Location A to get the most customers at the lowest price? Probably not. To keep staff happy at each location, she likely needs some level of minimum spend. She also has to consider the fact that as you try to spend more at each location, the cost per lead will go up.

But the cost per lead is only half the story — what Mary really wants to know is the cost per new customer. Because she has worked with a marketing agency to set up proper call tracking and marketing analytics, Mary is able to calculate cost per customer (See Table 2).

Table 2: Digital Marketing Cost Per Customer

Digital Marketing Cost Per Customer

What factors to consider: Demographics, Operational efficiency, Capacity, and Service mix

After working with dozens of multi-location companies and franchisor/franchisees, Position2 has developed a framework called “DOCS” to consider when optimizing advertising spend across locations:

  • Demographics: Consider the demographics of the neighborhood. Some locations will be in more prosperous areas, near areas with a concentration of a particular type of customer (e.g., College towns) or areas with more or less foot traffic. All of these factors should be considered along with the company’s product or service to arrive at a hypothesis of how many leads that location could bring in.
  • Operational Efficiency: Some locations — especially in service businesses — will be more or less efficient at converting leads to customers. This could be because of the quality of the reception staff, the hours of operation, or the quality of the service provider (e.g., an established service provider with a great reputation).
  • Capacity: In the service sector, a company’s capacity to serve demand will vary on a weekly or even daily basis. In this example, Mary would want to develop a system to collect prospective information on how many open spots she has in each doggie daycare pack on a regular basis. She would want to spend less money on those locations that have fewer slots open. This dynamic also exists, albeit to a lesser extent, in retail stores, as the amount of product the store has on a shelf will vary.
  • Service Mix: All the stores may not offer the same services. Mary may have some locations that offer training, grooming, or boarding, whereas others only offer doggie daycare. Mary should only spend on relevant keywords for each location, or have a good system for cross-referrals.

From Theory to Practice: Putting a dynamic optimization system in place

Putting the DOCS framework into place requires the proper setup. Here are some things to consider:

  • Don’t do this just once: Once you decide how much budget to allocate to each location, ensure you have a system in place to revisit this regularly. Each location’s operational efficiency and capacity will fluctuate regularly, and over time even the demographics and service may shift over time. With many of our clients, we revisit these budget allocations on a monthly or quarterly basis.
  • Use prospective information: Using historical data to predict the future is a necessary input. Where possible, however, try to augment historical data with prospective information (i.e., things you know about the future). For example, a location’s capacity may be low when you look at the past month, but you may be hiring an extra staff member or two in the next two months. You should change your budget allocation in advance to make the most of your location’s budget.
  • Create tiers: It may be difficult to report and digest information on each location. To facilitate ease of reporting to executives, and to ensure the system is easy to sanity check, we often set up “tiers of performance” with our clients. The top tier usually consists of those locations deserving of the most budget based on a balance of DOCS framework considerations. The next tier has the next highest average budget, and so on and so forth. With a tiered system, it is easier to report to executives about how each tier is doing.

Optimizing budget allocation across multiple locations is tricky, but if you do it well, you will have a big jump on your competitors — and well on your way to getting the most bang for your buck out of your Google, Bing, and Facebook ad dollars. Consider demographics, operational efficiency, capacity, and service mix, and you will be well on your way to a sophisticated approach that gets the most out of each dollar of your marketing budget.

Team Position2

August 5, 2020

By Team Position2