For all the dashboards, econometric models, and AI-assisted forecasts at our disposal, the way many marketing budgets are set hasn’t changed much in decades.
The numbers may look more sophisticated, but the process is still often anchored in convention rather than performance. And that gap between how budgets are set and how performance is managed can quietly limit growth.
The good news: this gap is also where marketing performance leaders can have the most impact.
Common approaches and their limitations
Most organizations still rely on a few familiar methods when setting budgets:
Each has value in providing structure. But on their own, they rarely answer the most important question: what is the return from the next dollar, and where should it be spent?
Understanding the Underspending Trap
Across industries, one consistent pattern emerges: brands often invest below their profit-maximising point on the curve.
This isn’t about risk aversion — it’s about visibility. Most organizations plan budgets based on precedent or comfort, not modeled opportunity. The “typical current spend” point on the chart (around $3M) represents this plateau: the level where many brands stop investing because it feels sufficient or “on target,” even though the data suggests profitable headroom remains.
The chart below contrasts this with the profit-maximising point (just above $5M), where incremental returns finally taper off. The space between the two is the underspending trap — missed profit that never makes it into the business.
The Profit Curve: Underspending Trap vs. Optimal Investment
The “typical current spend” (~$3M) represents where many brands pause investment based on habit or last year’s plan. The profit-maximising point (~$5M) shows where total profit peaks before diminishing returns set in. The gap between them is the underspending trap — crucial missed profit.
From Average ROI to Marginal ROI
Traditional ROI reporting focuses on averages. This is useful for summarising the past, but less helpful for guiding future allocation.
Marginal ROI offers a different perspective: it shows the return on the next unit of spend. If that return is still above your hurdle rate, there’s a case for continued investment - even if average ROI is falling. The hurdle rate is the minimum return a project, investment, or marketing campaign must deliver to be considered worthwhile. It serves as a benchmark for decision-making.
This shift in lens can reframe budget conversations from static justification to dynamic optimization.
Average ROI vs Marginal ROI with Profit-Maximising Point
Here’s what the ~$5M profit-maximising point looks like in ROI terms: at this point, average ROI is still positive, but marginal ROI has dropped to zero. In other words, each additional dollar of spend no longer adds incremental profit — the practical “hurdle rate” for marginal ROI. Beyond this point, more investment simply erodes returns, marking the boundary where optimization ends and overspending begins.
The two charts above show the same truth from different angles:
Put simply: profit is maximised at the moment marginal ROI hits zero because in most cases the logical business goal is to maximize net profit. That’s the decision marker performance leaders can use to bring clarity (and confidence) into budget conversations.
One way to make this less technical is to think about optimal is the spend that delivers on the full potential of the business. As a marketer, you’ve built a strong brand behind a good product or service, underspending means that you’re leaving value on the table.
A More Balanced, Multi-Lens Approach
Marketing Mix Modeling provides a clear view of the profit curve, but it’s not a crystal ball. It typically focuses on short-to-medium term effects, relies on historical data, and needs strong inputs and expertise to build well. Results are estimates, not absolutes; but when used with that awareness, MMM remains one of the most powerful tools for guiding confident, evidence-based investment decisions, especially when combined with other perspectives.
MMM serves as the empirical backbone, while strategy and market context provide the necessary balance.
The most effective budget strategies combine:
When used together, these lenses create a budget that’s both strategically grounded and evidence based.
Guidance for Performance Leaders
For Marketing leaders, the opportunity is clear:
By guiding the budgeting process in this way, you move from reporting on past performance to actively shaping future growth.
Closing Thought
The budgeting process doesn’t have to remain tied to old conventions. With a more balanced, multi-lens approach (and with MMM used as the backbone of evidence) you can help your organization move from precedent-driven budgeting to profit-driven planning.
Up Next — Part 2: Modeling as a Decision Engine: From Insight to Resource Allocation
We’ll look at how to embed MMM outputs into an ongoing budgeting process that is agile, defensible, and aligned with both finance and strategy.