How to Allocate Marketing Budgets Across Channels

A data-driven marketer has to face a lot of questions and challenges when allocating marketing budgets. 

Some of the most common challenges are:

  • Can I double my sales just by doubling my ad spend? 
  • Why do I see a decline in the conversion rate and increase in cost per acquisition when I rapidly invest huge amounts of money?
  • What will happen, if I over-invest in one marketing channel and sideline other marketing channels just because their last click conversions are not so good?
  • Why does the performance of a marketing campaign sometimes deteriorate once I start pumping more money into it?

Let us suppose that you increased the budget of your Facebook campaign by 80% (all other things being constant) because it is performing so well. 

But instead of getting better results, you start seeing a decline in the conversion rate and an increase in cost per acquisition

I have been in this situation several times. I saw a campaign performing very well, got excited and doubled the ad spend. But then ……BAM…… conversion rate down, cost per acquisition up and panic and fear.

Recently one of my clients suffered from similar excitement. He was amazed by the performance of the Facebook channel over the last month.

He got excited and asked me to double the ad spend on Facebook. Having been burned several times in the past by investing too much at once in the same way, I knew this was not going to work.

So I did what marketers usually do. I convinced him that it is not a good idea and that we need to go slow.

Although the high performance seems such a justifiable reason to invest more, things are not so black and white in the world of multi-channel marketing. And overlooking important factors can possibly result in a massive loss in sales. 

Before you invest too much money in any marketing channel or campaign, you need to consider the following two factors:

  1. The law of diminishing returns.
  2. The role of assisting marketing channels.

The law of diminishing returns

According to the law of diminishing returns, if you keep adding more of one unit of production to a productive process while keeping all others units constant, you will at some point start producing lower per unit returns. 

For example, if you keep pumping more money into a Facebook campaign without changing the present form of the campaign then at some point you will reach the point of diminishing returns.

And once you cross that point, your conversion rate will go down and cost per acquisition will go up.

So when you are thinking of increasing the ad spend of a marketing campaign by a considerable amount, think of putting more ads and/or targeting more keywords. 

This way you will change multiple units of production and can stay away from the point of diminishing returns. 

To determine the point of diminishing returns, you need to gradually add more of one unit of production to the production process. 

If you rapidly add units, you will never know when you crossed the point of diminishing returns and started losing money. 

That is why I suggested to my client, go slow while increasing the ad spend on Facebook. 

The role of assisting marketing channels

Up until now, you may be investing in Facebook with the belief that it is generating a lot of conversions. But before you over-invest in Facebook, wait a minute. 

Do you really think Facebook is generating all those conversions?

In the world of multi-channel marketing, every marketing channel tends to assist conversions in some way. 

So are you really confident that there is no other marketing channel helping to drive Facebook conversions?

You need to look at the role played by assisting marketing channels before you take big decisions and double or triple the ad spend on Facebook in the hope to multiply its performance. 

Because if you don’t, you may reach the point of diminishing returns, as you are adding more of one unit of production (here, the ad spend) to one marketing channel (Facebook) while keeping other units constant (i.e. not investing a proportional amount in assisting marketing channels).

This logic holds true for any marketing channel and not just Facebook.

Additional Reading: Complete Guide to Attribution Modeling in Google Analytics

Takeaways

1. Understand that just doubling the ad spend of a high performing marketing channel or campaign may not result in a proportional increase in performance. You need to do a lot more than just increasing the ad spend. Consider running more ads, targeting more keywords or new markets. So that you can stay away from the point of diminishing returns.

2. Go slow with your investment in a marketing campaign or channel in its present form. If you rapidly invest a huge amount of money, you may never know when you crossed the point of diminishing returns and start losing money.

3. Understand that in the world of multi-channel marketing, no one marketing campaign or channel is solely responsible for conversions. Different channels/campaigns work together to create a conversion.

4. Understand that over-investing in any marketing channel while overlooking the role of assisting marketing channels may take you to the point of diminishing returns faster than you think.

 

Attribution Modelling in Google Analytics and Beyond Attribution Modelling in Google Ads and Facebook

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Other articles on Attribution Modelling

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  2. How to valuate Display Advertising through Attribution Modelling
  3. Understanding Shopping Carts for Analytics and Conversion Optimization
  4. 6 Keys to Digital Success in Attribution Modelling
  5. Google Analytics Attribution Modeling Tutorial
  6. How to Measure and Improve the Quality of SEO Traffic through Google Analytics
  7. How to explain attribution modelling to your clients
  8. Default and Custom Attribution Models in Google Analytics
  9. Understanding Missing Touchpoints in Attribution Modelling
  10. What You Should Know about Historical Data in Web Analytics
  11. Model Comparison Report Explained in Google Analytics Attribution
  12. Data-Driven Attribution Model in Google Analytics – Tutorial
  13. Conversion Lag Report Explained in Google Analytics Attribution
  14. Selecting the Best Attribution Model for Inbound Marketing
  15. How to do ROI Analysis in Google Analytics
  16. Conversion Credit Models Guide – Google Analytics Attribution
  17. Introduction to Nonline Analytics – True Multi Channel Analytics
  18. Conversion Types Explained in Google Analytics Attribution
  19. Attribution Channels Explained in Google Analytics Attribution
  20. Differences Between Google Attribution & Multi-Channel Funnel Reports
  21. Introduction to TV Attribution in Google Analytics Attribution 360
  22. Conversion Credit Distribution for Attribution Models in Google Analytics
  23. Conversion Paths Report Explained in Google Analytics Attribution
  24. Attribution Model Comparison Tool in Google Analytics
  25. Touchpoint Analysis in Google Analytics Attribution Modelling
  26. Attributed Conversions & Attributed Revenue Explained in Google Attribution
  27. Which Attribution Model to use in Google Analytics?
  28. Google Attribution Access and User Permissions – Tutorial
  29. Conversion Path Length Report Explained in Google Analytics Attribution
  30. How to set up a data-driven attribution model in Google Analytics
  31. View-Through Conversion Tracking in Google Analytics
  32. Offline Conversion Tracking in Google Analytics – Tutorial
  33. How to Create Custom Attribution Model in Google Analytics
  34. 8 Google Analytics Conversions Segments You Must Use
  35. You are doing Google Analytics all wrong. Here is why
  36. How to Use ZMOT to Increase Conversions and Sales Exponentially
  37. Connected Properties Explained in Google Analytics Attribution
  38. Marketing Mix Modelling or Attribution Modelling. Which one is for you?
  39. How is attribution modelling helpful for ecommerce and non-ecommerce websites?
  40. Conversion Time & Interaction Time Explained in Google Analytics Attribution
  41. How to Allocate Budgets in Multi Channel Marketing
  42. How Does Attribution Work?
  43. Data-Driven Attribution Model Explorer in Google Analytics
  44. Introduction to Attribution Beta – Attribution Project in Google Analytics

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Maths and Stats for Web Analytics and Conversion Optimization
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Master the Essentials of Email Marketing Analytics
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Attribution modelling is the process of determining the most effective marketing channels for investment. This book has been written to help you implement attribution modelling. It will teach you how to leverage the knowledge of attribution modelling in order to allocate marketing budget and understand buying behaviour.

Attribution Modelling in Google Ads and Facebook
This book has been written to help you implement attribution modelling in Google Ads (Google AdWords) and Facebook. It will teach you, how to leverage the knowledge of attribution modelling in order to understand the customer purchasing journey and determine the most effective marketing channels for investment.

About the Author

Himanshu Sharma

  • Founder, OptimizeSmart.com
  • Over 15 years of experience in digital analytics and marketing
  • Author of four best-selling books on digital analytics and conversion optimization
  • Nominated for Digital Analytics Association Awards for Excellence
  • Runs one of the most popular blogs in the world on digital analytics
  • Consultant to countless small and big businesses over the decade
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