Ad Spend Allocator

Optimize budget distribution across advertising channels using efficiency metrics and diminishing returns analysis.

Process

1. Collect channel data - Spend, revenue, conversions by channel (minimum 30 days)
2. Calculate efficiency metrics - MER, aMER, channel ROAS, marginal ROAS
3. Identify diminishing returns - Detect channels approaching saturation
4. Apply allocation framework - 70-20-10 rule as baseline
5. Recommend shifts - 10-20% increments with monitoring periods

Key Formulas

MER (Marketing Efficiency Ratio) = Total Revenue / Total Marketing Spend
Target: 3.0-5.0x (varies by industry, margin structure)

aMER (Acquisition MER) = New Customer Revenue / Total Ad Spend
Purpose: Isolates new customer acquisition efficiency

Channel ROAS = Channel Revenue / Channel Spend
Use for: Channel comparison, baseline performance

Marginal ROAS = (Revenue at Spend B - Revenue at Spend A) / (Spend B - Spend A)
Purpose: Detect diminishing returns before blended ROAS shows issues

70-20-10 Budget Allocation Rule

Tier	Allocation	Criteria
Proven	70%	Consistent ROAS, predictable results, 3+ months track record
Scaling	20%	Emerging opportunities, positive early signals, testing scale
Testing	10%	New channels, creative experiments, unproven strategies

Diminishing Returns Indicators

• Higher CPC with same targeting (auction saturation)
• Frequency increasing on Meta (audience exhaustion)
• Conversion rate declining while impressions increase
• CPM inflation without response improvement
• Marginal ROAS dropping below blended ROAS

Reallocation Decision Framework

1. Calculate marginal ROAS by channel (compare week-over-week at different spend levels)
2. Identify channels approaching saturation (marginal ROAS < blended ROAS)
3. Shift 10-20% at a time to unsaturated channels
4. Monitor for 7-14 days before further changes
5. Document and track impact

Output Format

## Budget Allocation Analysis

**Total Monthly Spend**: $[X]
**Current MER**: [X]x
**Target MER**: [X]x

### Channel Efficiency Summary
| Channel | Spend | Revenue | ROAS | Marginal ROAS | Status |
|---------|-------|---------|------|---------------|--------|
| | | | | | [Scaling/Saturated/Testing] |

### Diminishing Returns Detection
- [Channel]: [Evidence of saturation]

### Recommended Reallocation
| From | To | Amount | Rationale |
|------|-----|--------|-----------|

### 70-20-10 Current vs Recommended
| Tier | Current | Recommended | Gap |
|------|---------|-------------|-----|
| Proven (70%) | | | |
| Scaling (20%) | | | |
| Testing (10%) | | | |

### Expected Impact
- Projected MER improvement: [X]%
- Confidence: [HIGH/MEDIUM/LOW]

### Monitoring Plan
- Review metrics in [X] days
- Key indicators to watch: [List]

Example

Input: "Google Ads: $50K, $200K revenue. Meta: $30K, $90K revenue. TikTok: $10K, $25K revenue. Seeing Meta CPMs up 35% last month."

Output:

## Budget Allocation Analysis

**Total Monthly Spend**: $90,000
**Current MER**: 3.5x ($315K / $90K)

### Channel Efficiency Summary
| Channel | Spend | Revenue | ROAS | Status |
|---------|-------|---------|------|--------|
| Google | $50K (56%) | $200K | 4.0x | Scaling |
| Meta | $30K (33%) | $90K | 3.0x | ⚠️ Saturated |
| TikTok | $10K (11%) | $25K | 2.5x | Testing |

### Diminishing Returns Detection
- **Meta**: 35% CPM increase signals auction saturation/creative fatigue

### Recommended Reallocation
| From | To | Amount | Rationale |
|------|-----|--------|-----------|
| Meta | Google | $6K (20%) | Higher efficiency, room to scale |
| Meta | TikTok | $3K (10%) | Test scaling opportunity |

### Expected Impact
- Projected MER improvement: 8-12%
- Confidence: MEDIUM (need marginal ROAS data for precision)

### Monitoring Plan
- Review in 14 days
- Watch: Google CPC trends, TikTok conv rate, Meta frequency

Guidelines

• Never recommend >20% shifts at once (too disruptive)
• If marginal ROAS data unavailable, note this and use blended metrics with lower confidence
• Account for seasonality - compare year-over-year if possible
• Flag if total spend seems misaligned with business size