Stop 10 · E-commerce & Performance MarketingTopics · 8/8

Performance Marketing Budget Allocation

In short

Each channel gets less efficient the more you spend in it. Smart budget allocation keeps moving money to wherever the next rupee earns the most.

Deciding how to split spend across paid channels based on marginal return — moving budget toward what's currently performing best while still testing new channels for future growth.

The blob pours water from a small can into a row of potted plants on a sunny terrace.

Think of it like this

Watering the terrace garden

You have one bucket of water for ten pots. Pouring it all into the tulsi drowns it while the chillies dry up. You give each pot what it can actually use. Budget works the same: past a point, more money in one channel just overflows.

Watch it happen

Where should the next ₹10,000 go?

Search: 6x → 3x

Meta: 4x → 3.5x

Shopping: 5x → 4.5x

YouTube: test

1/6Each channel shows average ROAS, then the ROAS on the last chunk of spend added.

The big ideas

What you need to know

Diminishing returns

The first rupees in a channel find the easiest buyers. Later rupees cost more per sale.

Marginal over average

Judge the return on the last extra spend, not the channel's overall average.

Keep a test slice

A common habit: most budget on proven channels, some on promising ones, a little on experiments.

Review often

Look weekly or monthly. Seasons, competitors and prices change what works.

See it in code

Walk through the code

excel

1     A          B (Spend)   C (Revenue)   D (ROAS)22    Month 1    ₹50,000     ₹3,00,000     =C2/B2    → 6.0x33    Month 2    ₹70,000     ₹3,60,000     =C3/B3    → 5.1x44    Marginal   =B3-B2      =C3-C2        =C4/B4    → 3.0x

1/2Average ROAS dips a little as spend grows.

Average ROAS still looks fine at 5.1x, but the extra ₹20,000 only brought ₹60,000. That's the number to compare across channels.

Save yourself the pain

Common mistakes

Oops

Giving all extra budget to the channel with the best average ROAS.

Do this instead

Check its marginal return first. It might already be saturated.

Oops

Never testing new channels because current ones 'work'.

Do this instead

Keep a small test budget, so you find the next good channel before the current ones get expensive.

Your mission

Allocate a ₹1 lakh budget

~25 min

Quick check

Channel A: average ROAS 7x, marginal 2x. Channel B: average 4x, marginal 4x. Where should the next ₹10,000 go?

Go deeper

1Draft a hypothetical budget reallocation based on 3 channels' relative ROAS.
2Learn why the best-performing channel today can hit diminishing returns as you scale spend.
3Practice justifying keeping a small 'testing budget' even when one channel is clearly winning.