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.

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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 assisted 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 assisted 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 assisted 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 assisted 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 increase 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 assisted marketing channels may take you to the point of diminishing returns faster than you think.

Get my best selling books on Attribution Modelling

• Learn to implement attribution modelling in your organisation
• Understand the customer purchase journey across devices
• Determine the most effective marketing channels for investment

 Click book covers to find out more

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