Allocating budget to improve performance using MMM

Where should I invest my next dollar?

As a Performance Lead, this is one of the most crucial questions you face. Whether you're managing a small budget or a significant ad spend, every dollar counts.

Violet’s Marketing Mix Modeling (MMM) dashboard provides the tools to make such decisions data-driven, allowing for better outcomes with optimized budget allocation. Here’s how any performance team can leverage Violet’s MMM dashboard to make the most out of every marketing dollar.

Follow this quick-step guide below to see how it's done on Violet, or keep reading to get a deeper understanding:

Shifting focus from average CPA to marginal CPA

When companies decide how to allocate budget across channels, many begin by looking at the average CPA (cost per acquisition). However, average CPA often gives an incomplete picture—it shows the cost of acquiring customers based on all historical spend, rather than helping you understand the impact of additional spending.

This is where marginal CPA comes in. Marginal CPA answers the question If I spend one more dollar in a given channel, how much will it cost me to acquire one additional customer?

By focusing on marginal CPA, performance teams can pinpoint the channel where the next dollar yields the most cost-effective customer acquisition.

Analyzing your channel investment mix

Violet's MMM dashboard visualizes your current media mix by channel, detailing both spend and each channel's share of total investment. The dashboard also provides key metrics that empower decision-makers to:

Assess marginal CPA across channels

The dashboard calculates marginal CPA dynamically, showing where the lowest marginal CPA lies across channels. The objective is simple: allocate budget to the channel where acquiring the next customer is the cheapest.

Monitor saturation points

Spending more in one channel often leads to diminishing returns, a phenomenon the MMM dashboard accounts for by showing saturation points. If a channel reaches its saturation, it becomes less efficient to put additional dollars there. Violet's model estimates these diminishing returns, encouraging a reallocation to channels that are less saturated.

Consider incremental value with MMM CPA

Alongside marginal CPA, the MMM dashboard shows incremental CPA, a measure of how much it costs, on average, to acquire a customer through each channel when taking into account that channel's unique contribution to the customer journey. This holistic approach goes beyond last-click attribution to reveal each channel’s true impact.

Avoiding common pitfalls: The "success trap"

A common budgeting trap is to invest heavily in channels that already have significant budget allocation, simply because they’re performing well. However, Violet’s dashboard reveals that high investment in a channel can sometimes lead to inefficiency due to rising CPAs and diminishing returns.

By looking at the dashboard, you might see that a lower-spend channel with a lower marginal CPA presents an opportunity for more cost-effective growth.

For example, if your dashboard shows that Facebook's incremental and marginal CPAs are lower than an affiliate channel, this could suggest prioritizing Facebook even if affiliate CPA looks attractive on the surface.

Practical application

Imagine you have an extra budget to spend and are reviewing the MMM dashboard. Here’s how you might proceed:

Step 1. Identify channels with low marginal CPA

Start by identifying channels where the dashboard indicates the lowest marginal CPA. Suppose you see Facebook and Reddit both have relatively low marginal CPAs—you’d prioritize these over channels where marginal CPA is higher.

Step 2. Evaluate scalability

Not every channel can scale equally. For instance, if you’re assessing a brand-related channel, budget expansion might be limited due to constraints like user search intent. On the other hand, paid social channels may have more room to scale, making them a better choice for incremental investment.

Step 3. Compare incremental CPA to marginal CPA

For a holistic view, compare each channel’s marginal CPA against its MMM CPA to understand the incremental impact. Violet's dashboard will show you, for example, that while an affiliate channel may show a high average CPA, its marginal CPA might suggest more favorable incremental gains elsewhere.

Making Strategic Decisions with MMM Insights

Violet's MMM dashboard brings clarity to these complex decisions, empowering your team to make informed choices that drive better results. By revealing the marginal and incremental CPAs for each channel and highlighting potential saturation points, you can optimize your marketing investments for maximum return.