Where Should I Spend My Next Marketing Dollar?
Where should I spend my next marketing dollar? Marketers have sought to answer this question for years, with approaches ranging from the highly technical to throwing a dart at a dartboard. Paid search ad spending is no different.
Savvy marketers often rely on forecasting tools to answer this question; by modeling past behavior and, in some cases, anticipating future events that may affect outcomes, forecasting tools determine where marketers can get the biggest bang for their buck. The trap most marketers fall into when using these tools is calculating and making buying decisions based on overall return on investment (ROI) when they should really be considering the marginal ROI of each publisher individually to compare the value of incremental spending with those different publishers.
Forecasting Marginal ROI
Normally, ROI is calculated by dividing total revenue by total spending. While useful for calculating the success of entire campaigns, this approach provides little useful direction about where marketers should spend their next dollar. Marginal ROI, on the other hand, only considers the increase in revenue that is predicted from the increase in spending. For example, if spending increases from $80,000 to $100,000, and forecasting tools predict that my revenue would increase from $200,000 to $230,000, the marginal ROI of that $20,000 is 1.5 ($30,000/$20,000). Across an entire campaign, marginal ROI helps determine whether spending the next dollar will make a significant impact, but does not answer the question of where to spend it.
Forecasting Marginal ROI by Publisher
To truly understand where marketers should spend their next dollar, they can take the next step and forecast marginal ROI by publisher. Building a campaign profile for each separate publisher enables marketers to more directly predict which publisher has the greater investment opportunity compared to current spending levels.
The following two-publisher hypothetical example helps demonstrate how forecasting marginal ROI by publisher empowers additional insight into the behavior of the program as a whole:
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