The short answer
Set your overall media investment by calculating the incremental ROAS required to meet your financial target, then increase spend while the last dollar invested still meets that threshold. Account for returns, product margins, logistics, and handling costs, and agree how much future customer value your payback target should recognize.
Here's a summary video from Sellforte CEO, Juha Nuutinen:
This article is part of Asked by Marketers, a series answering real questions from marketing leaders.
Sellforte's team holds more than 1,450 meetings each year with marketing leaders in Ecommerce and Retail about Marketing Mix Modeling and incrementality testing. Each week, we anonymize at least one question from those conversations and answer it in depth, based on what marketers are actually struggling with, not what keyword tools suggest. About the series
Why marketers ask this
Most companies begin media planning with a number carried over from last year. The team then tries to get as much as possible from that budget. Historical spend becomes the starting assumption, even when nobody has checked whether it matches the company's current opportunity to grow profitably.
That leaves a question unanswered: how much could the company invest while still earning an acceptable return? A fixed budget can hide both underinvestment and overspending. Improving the channel mix helps, but you also need to assess the size of the total paid media budget.
How do you calculate the ROAS target your business needs?
Start with the contribution each additional sale leaves available to pay for media. Work with finance to account for returns, the product margin on net sales, and the logistics and handling costs associated with those orders.
Agree on the revenue definition first. Gross order value before returns and net sales after returns are different amounts. A ROAS target calculated from one cannot be compared directly with a result reported on the other. If your measurement already uses net sales after returns, do not deduct returns again.
For a simplified calculation, express the contribution left after product costs and variable order costs, but before media, as a percentage of net sales. Your break-even incremental ROAS is:
Break-even incremental ROAS = 1 ÷ contribution margin rate before media
For example, assume each $100 of incremental net sales leaves $40 after those costs. The contribution margin rate is 40%, so the break-even incremental ROAS is 1 ÷ 0.40 = 2.5. Every dollar of media must generate $2.50 in incremental net sales to cover its cost. These are illustrative figures.
This threshold describes whether additional media pays for itself after the specified variable costs. Finance may require a higher return to contribute toward fixed costs or a profit objective. Where margins or return rates differ substantially between products or markets, use the corresponding economics in the calculation.
Why does the return on the last dollar matter?
The last dollar tells you whether increasing the budget is worthwhile. Average ROAS summarizes the return on all the spend you have already made, and can remain attractive even when the next increase would lose money.
For budget decisions, use marginal incremental ROAS: the additional revenue caused by an additional unit of media spend. Incremental revenue excludes sales that would have happened anyway. A platform's attributed ROAS can use a different basis, so agree on an incremental business target before translating it into campaign bidding settings.
Advertising response curves describe how sales respond as investment changes. As a channel saturates, each additional dollar typically produces less extra revenue. That is why a channel with strong historical returns may have little room for more spend.
Compare the marginal return from each feasible increase with your financial threshold. Increase investment where the return clears it. Reallocate or reduce spend where the return falls short. Because changing the channel mix changes the return available from the overall budget, evaluate the mix and total investment together.
Should every media dollar pay back immediately?
A company can accept a lower immediate payback when media brings in new customers who are expected to buy again. That choice needs an explicit allowance for future value and an agreed period in which the business expects to recover its investment.
We typically recommend considering an 80% profit-payback threshold to give media credit for that future customer value. In practical terms, this means accepting $0.80 of contribution before media for the last $1 invested within the initial measurement window. The remaining $0.20 must be justified by expected later contribution. An 80% payback threshold is not an 80% profit margin.
Under the illustrative 40% contribution margin assumption above, full immediate payback requires an incremental ROAS of 2.5. An 80% payback threshold would require 0.80 ÷ 0.40 = 2.0. The lower target permits more investment, with part of the return expected later.
Treat 80% as a recommendation to assess against your business, rather than a universal target. Look at repeat-purchase behavior, the contribution those purchases generate, and how long the company can wait for payback. If your measured return already includes future customer value, check that a lower threshold does not give the same future purchases credit twice.
How do you turn the target into a total media budget?
Choose a planning period and estimate the return from different total budgets, allowing the channel allocation to change at each level. The appropriate budget is the amount you can deploy while the marginal return still meets your agreed target, within the company's cash and operating constraints.
Marketing Mix Modeling can estimate incremental sales and response curves across channels while accounting for factors such as seasonality and promotions. Use those curves to compare a current-budget scenario with lower and higher investment levels. Inspect the return from each increase, since an acceptable average ROAS for the full plan can conceal an unprofitable final increase.
The planning period matters. A budget that pays back during a strong trading period may produce a different return when demand is lower. Revisit the calculation when demand, margins, or media performance changes. For a large increase beyond the spend levels you have tested, scale in stages and check the realized response before committing the full amount.
How this looks in practice
Consider a hypothetical ecommerce company planning next month's media budget. Its current plan is $100,000. It uses incremental net sales after returns, has a 40% contribution margin before media, and initially requires full payback within the measurement window. Its break-even target is therefore 2.5.
Assume the team compares optimized media plans in $20,000 steps, with the same demand assumptions and no additional fixed costs or cash constraints. Each row below shows the effect of the next increase relative to the preceding budget. All figures are illustrative.
| Total media budget | Extra net sales from the next $20,000 | Return on that increase | Contribution after the extra media cost |
|---|---|---|---|
| $120,000 | $70,000 | 3.5 | $8,000 |
| $140,000 | $50,000 | 2.5 | $0 |
| $160,000 | $40,000 | 2.0 | −$4,000 |
| $180,000 | $30,000 | 1.5 | −$8,000 |
Moving from $100,000 to $120,000 adds $70,000 in net sales. At a 40% contribution margin, that leaves $28,000 before the extra $20,000 in media cost, or $8,000 afterward. The next increase, to $140,000, exactly covers its additional media cost.
Among these scenarios, $140,000 is the highest budget that clears the full-payback requirement on the final increase. Moving to $160,000 would recover only $16,000 of the additional $20,000 within the initial window. It meets an 80% payback threshold, provided the business accepts the $4,000 shortfall and has evidence supporting its recovery from later purchases.
These $20,000 steps approximate the marginal decision. Smaller steps around the threshold would locate it more precisely. Before adopting either plan, review the uncertainty in the sales estimates with finance and check that the assumed contribution margin still holds at the proposed scale.
How Sellforte helps
Sellforte combines incremental sales measurement, response curves, and budget scenarios so teams can compare the expected effects of changing media investment. Marketers can assess the proposed spend and sales changes against the payback requirement agreed with finance. Book a demo.
Authors
Lauri Potka is the Chief Operating Officer at Sellforte and has over 15 years of experience in Marketing Mix Modeling, marketing measurement, and media spend optimization. Before joining Sellforte, he worked as a management consultant at the Boston Consulting Group, advising some of the world's largest advertisers on data-driven marketing optimization. Follow Lauri on LinkedIn, where he is one of the leading voices in MMM and marketing measurement.
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