How does the budget saturation curve work?
Borrowed from Biochemistry: Hill / Michaelis-Menten response
Biochemists use the Hill equation to describe how a response rises with dose and then levels off. Ad spend behaves the same way: early dollars reach the best audiences, and later dollars reach people who are harder to convert.
This tool finds the spend where marginal revenue per dollar falls to 1. Use gross profit instead of revenue if you want the point where an extra dollar stops adding profit.
Worked example
A US store expects at most $100,000 a month from a channel (Rmax), with half of that at $20,000 of spend (k) and a shape of 1. The extra dollar stops paying back at about $24,700 of spend, where revenue is about $55,300.
How should I read my result?
Room to grow. Raise spend in steps and watch the marginal return.
Hold spend here and test creative and audiences to shift the curve upward.
Each added dollar returns less than a dollar. Move the excess to another channel.
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Questions about budget saturation curve
Where do Rmax and k come from?
Fit them to several weeks of spend and revenue data for the channel. The tool lets you try values to see the effect.
Should I use revenue or profit?
Enter gross profit to find the point where spend stops adding profit. Revenue finds the point where it stops adding sales.
What does the shape value n do?
A value of 1 gives a smooth curve that flattens. Values above 1 make an S-shape with slow early returns.