Optimal Online Marketing Budget

We've previously discussed the importance of the "square root" rule in analyzing marketing campaigns, when solid test-based data is not available to the analyst.

Assume you spent $20,000 on an online marketing campaign, yielding $60,000 net sales, and a net loss of $2,000 (assuming 30% of sales flow-through to profit). You want to know what might have happened, had you spent more or less than $20,000.

Square Root Rule --- Assume you wanted to only spend $10,000. Sales will change by the following factor: ($10,000 / $20,000) ^ 0.5 = 0.707. Net Sales of $60,000 will change by 0.707, or $60,000 * 0.707 = $42,426. Profit = $42,426 * 0.30 - $10,000 = $2,728.

Again, if you don't have good test-based data to make comparisons with, use this rule as a quick shortcut.

The table below illustrates different spend levels, associated sales, and profit.

Spending Level	Net Sales	Estimated Profit
$10,000	$42,426	$2,728
$12,500	$47,434	$1,730
$15,000	$51,962	$588
$17,500	$56,125	($663)
$20,000	$60,000	($2,000)
$22,500	$63,640	($3,408)
$25,000	$67,082	($4,875)
$27,500	$70,356	($6,393)
$30,000	$73,485	($7,955)