The Budget Priority Waterfall
We do not just "spend the budget." We fund priorities in a strict sequence to protect the business core first. This waterfall logic prevents the common failure mode of starving essentials to fund experiments.
The Waterfall Logic
Budget allocation is not democratic. Some spending is essential (losing it destroys revenue), some is discretionary (growth bets), and some is speculative (learning and testing). The waterfall ensures essentials are fully funded before discretionary spending begins.
"Fund in sequence, not in parallel. Each priority must be fully funded before the next level receives any budget."
Priority 1: Baseline Demand Capture
Fund first. Never cut.
Fund to target impression share on brand and hero exact terms. This is defensive revenue we cannot afford to lose. Missed impression share here is literally handing cash to competitors.
Metric: Impression Share Lost (Rank/Budget)
Priority 2: Profit Drivers
The cash engine.
Fund until marginal contribution per pound stays above threshold. This generates the cash that funds everything else. If these stop working, the business feels it immediately.
Metric: Contribution Margin per £ spent
Priority 3: Acquisition (Growth)
Future customers, funded by current profits.
Allocate to CAC and payback targets only within cash runway. This is where we spend future money. Killing this because "ROAS is bad" is how growth stalls.
Metric: CAC : LTV Ratio, Payback Period
Priority 4: Inventory/Cash Recovery
Tactical deployment to clear problems.
Allocate tactically to clear overstock or recover cash quickly. Efficiency targets are relaxed here. The job is to move units and release capital, not maximise ROAS.
Metric: Stock Velocity, Cash Released
Priority 5: Learning & Testing
Always-on but first to cut.
Maintain 5-10% as always-on budget. Necessary for long-term health but cut first in a crisis. Binary outcomes: keep or kill. Do not optimise for ROAS; optimise for data density.
Metric: Test Confidence, Data Density
Operational Guardrails
The waterfall runs within hard constraints set by finance and operations:
| Guardrail | Set By | Purpose |
|---|---|---|
| Max Daily Cash Out | Finance | Prevents cash runway depletion |
| Min Stock Cover | Operations | Typically 3 weeks minimum |
| Max CPA (Cohort) | LTV Analysis | Based on payback tolerance |
Reallocation Triggers
When these signals fire, budget automatically reallocates:
- • Impression Share Shortfall: Pull from Acquisition → Demand Capture
- • Payback Drift (>60 Days): Cut Acquisition → Boost Profit Drivers
- • Stock Surplus: Open budget for Cash Recovery campaigns
- • Cash Crunch: Pause Learning/Testing, redirect to Profit Drivers