Spend on your biggest channel until it hits your ROAS floor, then add the next

Eric Seufert… like I might on-board like a lot of times, you hear this kind of like common refrain of like, "Uh well, the performance is great, but at really low spend." Well, okay, but that's actually not great. Like what I really care about is my my spend-adjusted ROAS, right, and not just that the ROAS is high on this particular channel at low levels of spend, because could I have taken all of that overhead, eliminated it for supporting that new channel,

Eric Seufertand then allocated that budget to Meta or Google, and seen the same level of ROAS? Because if I did, I'm actually worse off, if I could have. Right? So it's actually when you have a new channel, it's the ROAS doesn't have to meet the ROAS of the other channels that could have absorbed that budget, it has to exceed that, because you're supporting a new channel. And so I think like diversifying for the sake of diversifying is often a mistake. You diversify when you've reached saturation on the existing channels, I think, and then you look for other channels. Or, when you feel like there's some sort of interaction effect that that channel could produce

Eric Seufert… weeks ago called "Optimization Models in Digital Advertising," and I talk about optimizing towards ROAS and optimizing towards real just spend, and they're very different things, right? And so if I'm optimizing towards ROAS, then I really want to kind of keep spend as low as possible spread across many different channels, because I'll get the max ROAS per channel, right? Cuz the ROAS and the spend tend to move in opposite directions, right?

Eric SeufertBut that's oftentimes that's not really what I'm doing. I'm just optimizing towards maximizing spend with a ROAS constraint. And in that case, what you want to do is this what I call the waterfall method: So, max out the biggest channel, right, until it hits my ROAS threshold, then move on to channel two, which would be smaller like potential spend there. Max out channel two until it hits my ROAS threshold, move on to channel three. That's always the approach that I recommend companies take, because it minimizes overhead and complexity.

David BarnardAnd and, so what do you see as the risk? Or do you think it's just actually not risky? The risk is just missed opportunity? Like what how would you classify risk and how people should think about the risk of being so dependent on one or two channels?