📉 THE MARGINAL BUDGET ALLOCATION CHEAT SHEET
Stop optimizing average ROI. Allocate the next dollar to highest incremental return.
FROM “CLICK HERE” BY ALEX SCHULTZ
Most teams misallocate budget by backing the channel with the best average return. The right move is to fund the channel with the best marginal return at current spend.
Diminishing Returns Visuals (Use these in planning)
Response Curves by Channel
All channels flatten. You are buying lower-quality increments as spend rises.
Marginal Return Curves (Differential)
Each curve is the derivative of the response curve at left. Allocate next dollars to the highest current marginal-return curve.
How to allocate budget each cycle
- Estimate current marginal return by channel using experiments, lift studies, and calibrated MMM.
- Rank channels by next-dollar return, not blended CAC/ROAS.
- Move spend in small steps (e.g., 5–15%) to avoid overshooting the optimum.
- Re-measure after each shift because curves move as market and creative change.
- Lock guardrails: minimum brand presence, geo caps, and saturation ceilings.
Do this vs avoid this
✅ Do this
- Use incremental profit/revenue per extra dollar spent.
- Reallocate continuously, not annually.
- Separate steady-state spend from test spend.
- Pre-register read windows before calling winners.
❌ Avoid this
- Funding channels with best historical average ROAS.
- Reading attribution as causal truth.
- Making large one-shot shifts without retesting.
- Ignoring diminishing returns in planning decks.
Quick decision table
| Observed condition | Action |
|---|---|
| Channel X marginal return > Channel Y by meaningful margin | ✅ Shift incremental budget from Y to X |
| Channel X high average ROAS but low marginal return | ❌ Do not scale X further; harvest and hold |
| All channels near flat marginal return | ✅ Invest in creative/product improvements before raising spend |
| Evidence quality weak / conflicting | 🧪 Run bounded lift test before reallocation |
Budget allocation is a moving optimization problem. The winning channel for your last dollar is rarely the winner for your next dollar.