Budgeting in paid media is a constant debate between marketers and finance professionals. Marketers advocate for flexible budgets to enhance optimization, while finance teams prioritize strict controls to ensure profitability.

The rise of AI-driven campaigns like Performance Max (PMax) and Demand Gen has intensified this conflict. While these campaigns need dynamic spending, rigid budgets can limit growth potential. However, businesses, especially DTC brands, must also control costs and maintain efficiencies.

Where’s the balance? Let’s explore both perspectives and find a common ground.

The downside of strict spend targets in paid media

Marketing professionals can always control the budget, but with a growth DNA and deep reliance on AI-powered campaigns from Google, Microsoft, and other major platforms, cutting spend when demand is high feels counterproductive. Here’s why:

1. Missed high-intent traffic opportunities

AI-driven bidding prioritizes high-value users, but strict budgets may cut spend when conversion rates peak - such as during certain hours of the day or key shopping periods.

2. Limited learning and optimization

AI-powered campaigns require data and time to optimize. If budgets are too restrictive, Google’s algorithm can’t test different audience segments, placements, or creative variations effectively. This slows down learning and leads to suboptimal bidding strategies.

Learn from our best in class approach to Performance Max optimization.

3. Underutilization of AI bidding strategies

AI-based bidding models like Maximize Conversions or Maximize Conversion Value work best with spending flexibility. If budgets are capped too tightly, campaigns may lose competitive auctions and see higher cost-per-click (CPC) with fewer conversions.

4. Campaign instability and fluctuations

Strict budgets can cause campaigns to pause once daily caps are hit, leading to inconsistent ad delivery and lost conversions. This instability disrupts learning and prevents steady performance.

5. Reduced audience expansion and reach

AI campaigns optimize towards valuable audience signals, but budget limitations prevent them from exploring new high-potential audiences. This leads to stagnation and missed scaling opportunities.

But why do DTC companies and brands need to define budgets periodically?

We are all advocates for growth. However, when looking at a business top-down, financial budgets work as guidelines for each function to operate efficiently. Reasons include:

Cash Flow Management

Many DTC brands depend on stable cash flow to cover inventory, logistics, and operational costs. Overspending on ads can strain liquidity, leading to fulfillment and financial issues. Additionally, if demand outpaces supply, stockouts can occur, resulting in frustrated customers and wasted ad spend. Enforcing budget limits also ensures funds are available for seasonal peaks and slow periods, preventing inefficiencies and ensuring businesses can capitalize on high-demand periods like Black Friday and holiday seasons.

Profitability Protection & ROAS Goals

With thin profit margins, strict budgets help brands maintain a sustainable return on ad spend (ROAS). Spending beyond a profitable ROAS could lead to immediate losses in margin and revenue.

Nevertheless, throughout our experience with more than 100 leading DTC brands worldwide, this perspective has been proven to be unproductive in the long run, especially for brands that are at the peak of expansion momentum.

Let’s say you want to kick off your Performance Marketing activities in a new market but are eager to see immediate revenue at a decent ROAS, so you invest heavily in channels that are known to drive good ROAS, looking at historical data from existing markets. This practice can slow down the market growth as you send ads to those that are prompted to buy, not those that have not heard of you yet.

Case study: Demand led budgeting with Google Ads for a leading UK fashion brand

Let’s revisit our client, Brand X, a leading fashion brand who wants to excel their day-to-day Google Ads strategy and operations. Their goal was to grow their customer base and maintaining their brand position against fierce competition.

Profile:

· Everyday fashion brand, with largest presence in the UK and IE, but also popular throughout other parts of Europe.

· Annual paid media budget: approx. £20M, with 80% allocated to Google Ads.

Context:

· Brand X has fixed marketing budgets which are agreed on an annual basis. PPC budgets are based on sales volume and CPC forecast. Marketing spend is assessed on a weekly basis and cannot exceed a fixed amount per quarter.

· Within Google Ads, campaigns are not limited by budget, but investment levels are controlled through constant ROAS target adjustments (target tuning).

· Google's AI powered ad products and bidding algorithms work best with flexible budgets that allow you to invest to meet market demand, with a steady ROAS target.

Hypothesis: Running paid search with flexible budgets coupled with a fixed target ROAS (tROAS) will drive more revenue and more profit for Brand X.

Test Design:

· The test ran on the Performance Max priority campaign for six weeks.

· During this time, no changes were made to the ROAS target and budget caps were removed. The ROAS target was amended to reflect abusiness goal, rather than being set to drive an overall blended marketing CoS%.

· The test was assessed using a causal-impact analysis.

The results: Incrementally, profit grew 31% and revenue grew 16% by keeping the ROAS target constant.

The test also drove 16.9% increase in avg. weekly revenue and roughly 30.8% increase in avg. weekly profit.

The balance between budget control and maximum growth

The case study shows that manually adjusting AI-driven bidding to fit strict budgets can limit a brand’s growth. But does this mean DTC brands should abandon budget planning and allow unlimited ad spend? Not at all. Instead, finding a middle ground is crucial. Rather than imposing rigid daily or monthly budgets, brands can implement a tiered approach:

· Baseline budget to ensure core performance stability.

· Flexible budget allocation to scale when efficiency is strong.

· Reserve budget for unexpected high-value opportunities.

Shifting to a profit-based budgeting model instead of fixed caps is another effective solution - setting budgets based on profitability targets rather than arbitrary limits.

Bottom line

Strict budget targets can restrict the potential of AI-driven paid media campaigns, limiting growth and efficiency. While DTC brands must manage cash flow and profitability, excessive budget rigidity can lead to missed opportunities. The key is balance - a strategic approach that aligns financial discipline with marketing agility. By adopting tiered budgets and profit-based spending, brands can scale efficiently while maintaining stability. The case study proves that flexibility fuels long-term success.

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For nearly 20 years, the Crealytics team has mastered the art of strategic ad spending to balance growth and control. Reach out to us to maintain this equilibrium.

About Crealytics

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Crealytics is an award-winning full-funnel digital marketing agency fueling the profitable growth of over 100 well-known B2C and B2B businesses, including ASOS, The Hut Group, Staples and Urban Outfitters. A global company with an inclusive team of 100+ international employees, we operate from our hubs in Berlin, New York, Chicago, London, and Mumbai.

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