algo-ad-budget

# Ad Budget Allocation Optimization ## Overview Budget allocation distributes a total advertising budget across campaigns to maximize overall returns. Uses the equal marginal returns principle: allocate until the marginal CPA (or marginal ROAS) is equalized across all campaigns. Handles diminishing returns and budget constraints. ## When to Use **Trigger conditions:** - Distributing a fixed budget across multiple campaigns or channels - Identifying diminishing returns and optimal spend levels per campaign - Rebalancing budget after performance changes **When NOT to use:** - When optimizing bids within a single campaign (use bidding strategy) - When there's only one campaign (nothing to allocate across) ## Algorithm ``` IRON LAW: Equal Marginal Returns Principle Optimal allocation makes the MARGINAL return of the last dollar equal across ALL campaigns. If Campaign A's marginal CPA is $5 and Campaign B's is $15, shift budget from B to A until they equalize. Total budget constraint: Σ budget_i = total_budget. ``` ### Phase 1: Input Validation Collect per-campaign: historical spend, conversions, revenue at multiple spend levels. Need at least 3 data points per campaign to fit response curve. **Gate:** Sufficient historical data to estimate response curves. ### Phase 2: Core Algorithm 1. Fit response curve per campaign: conversions = f(spend). Common models: log curve, power curve, or S-curve 2. Compute marginal return curve: f'(spend) for each campaign 3. Allocate: use L...