LESSON 12 OF 13
The ad budget curve: why budget and required ROAS are linked
The upside-down hockey stick, and what to watch once you understand it.
At this point the framework is complete: the Profit Pyramid, the four expense buckets that make up its base, contribution profit as the metric, five levers, and three mistakes to avoid. What remains is what using it looks like day to day.
The shape
Plot the relationship between ad budget and the ROAS required to produce a specific profit outcome — budget on the x-axis, required ROAS on the y — and you get a curve. It drops steeply at first, then flattens as budget increases. An upside-down hockey stick.
It flattens because you are approaching your variable margin before ad spend, which is a floor you cannot mathematically go below. That floor is why the curve has an end, and why more budget stops helping at some point.
What the curve is really telling you
Ad budget and required ROAS are not independent variables. They are directly tied: moving one moves the other. And moving anything else — pricing, fixed expenses, discounts — changes the entire system and what it produces in net profit.
Understood properly, it shows you the no-go zones and where the floor sits. Knowing those before making a decision is the whole advantage.
What to monitor
Contribution profit, closely, on a weekly and monthly basis. Daily is available but myopic — interesting to look at, not especially useful. What matters is the trend, with a trend line on it, so you can see whether what you are doing is adding contribution profit or removing it.
Do not nitpick individual days. A spike or a collapse is worth understanding — an influencer may have done something you can repeat — but zoom out to week over week and month over month to read the direction.
On days where contribution profit dips below zero, what that technically means is that the business spent more to earn a dollar than the dollar was worth. Those days will happen. BottleKeeper had months of them. Keep them to a minimum.
Watch the slope of the trend line. Steeply up is good. Steeply down means something is on fire, and it is worth being aggressive about pulling other levers if you see it invert sharply.
Tie it to the changes you make
Log the date of every meaningful change — a 10% price test, a new agency, a discount period. Then look at contribution profit from a week before that date forward, and put a trend line on it. That answers the question: was the change good or bad for the business?
Seasonality can confound this, so stay conscious of what else was happening in the window. But for the most part, the direction of the trend line from the date of a change is the clearest answer available.