August 16, 2023

Don't Get The Slope Wrong

In Paid Search, you can make budgeting mistakes and barely notice them ... until your CFO produces a p&l for you.

Some marketing channels has a nice "slope" ... you increase ad spend by 50% and you get an approximate 20% to 25% gain in sales. It's predictable, reliable, and the relationship makes you look good.

Paid Search often has a sharp cutoff ... you get a ton of sales in the first third of your ad spend, from there sales gains are trivial as you continue to spend.

If you get the relationship wrong, you have the top portion of the table below in your forecast but the bottom portion of the table represents reality.

Long-term, your guesstimate for profit for a one-year increase in investment is positive.

In reality (below), you lose a fortune in year one and you don't make in up in years 2/3/4/5.

Every marketing channel has a slope ... the slope determines the diminishing returns relationship. Don't get the slope wrong!

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