How to set a spending limit for a marketing experiment
A test budget has two limits: the least you need to see a result, and the most you can lose without hurting the business. Use the smaller of the most you can lose and what the test needs.
Step by step
- Minimum to learn: conversions needed (about 10 to 20 per arm) × current cost per conversion.
- Maximum loss: the cash you can spend with zero return without delaying payroll or inventory.
- Spending limit: the lower of the two. If the minimum is above the maximum, run a smaller test or don't run it.
- Stop rule: a cost per conversion at which you stop early, usually 1.25× to 1.5× your current figure.
- Review date: the day the conversion window closes for the last spend.
Worked exampleExample
| Input | Value |
|---|---|
| Current cost per paying customer | $45 |
| Customers needed to judge | 20 |
| Minimum to learn | $900 |
| Maximum affordable loss | $1,500 |
| Spending limit | $900 |
| Stop if cost per customer exceeds | $56 |
Remember that Google can spend up to twice the average daily budget on a given day. Track cumulative spend against the limit, not only the daily budget.
Use this with your own numbers. Keep the evidence private, attach a budget and a review date.
Review my ad budget