E-commerce Insights: Multichannel Planning Is a Complex Endeavor

The advertising-to-sales trade-off curve typically isn’t smooth. You either take a list or keyword, or you don’t. And it often has a very steep cliff. That means, once you’ve bought the good stuff, the quality plummets, and additional sales come at a huge ad cost.

For modeling purposes, it can be helpful to assume this trade-off curve is smooth for small changes. The “square root rule” takes this approach, stating that sales increase linearly with the square root of advertising. It’s a wrong assumption for large changes, but a useful approximation for small ones.