You know about my diminishing returns relationship.
I asked ChatGPT to create an answer to a diminishing returns relationship. It figured out the diminishing returns part. It didn't figure out a credible answer. For now. The credible answer is clearly on the horizon. So is a whole lot of change to ecommerce.
Ready?
To estimate next year’s sales based on your advertising investment, let’s analyze the return on ad spend (ROAS) from previous years:
Last Year:
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Ad Spend: $50,000
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Sales: $200,000
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ROAS: $200,000 / $50,000 = 4.0
This Year:
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Ad Spend: $100,000
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Sales: $300,000
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ROAS: $300,000 / $100,000 = 3.0
The ROAS is decreasing as spending increases, which is typical due to diminishing returns.
To predict next year’s sales with a $150,000 ad spend, we can estimate ROAS will continue to decline. If the ROAS drops linearly:
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Change in ROAS: 4.0 → 3.0 (drop of 1.0 when increasing spend by $50,000)
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If it continues, the next $50,000 increase may bring ROAS down to 2.0
Projected Sales Next Year:
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Estimated ROAS: 2.0
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Ad Spend: $150,000
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Projected Sales: $150,000 × 2.0 = $300,000
Alternatively, using a weighted average ROAS:
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Total past spend: $50K + $100K = $150K
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Total past sales: $200K + $300K = $500K
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Average ROAS: $500K / $150K ≈ 3.33
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Projected Sales: $150K × 3.33 = $500,000
Conclusion:
Depending on how you model ROAS:
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Conservative (diminishing returns): ~$300,000
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Average performance: ~$500,000
Let me know if you want a more precise forecast using regression or another model.
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