How online marketing works and how to optimize budgets automatically. Same presentation given in two different data science events in Helsinki this week.

1. Budget Allocation in
Online Marketing
Markus Ojala
PhD, Chief Data Scientist @ Smartly.io
April, 2018

3. 1 billion spend
Managed yearly
Smartly.io
Facebook &
Instagram Partner

5. Online Marketing

6. Right creative To right
audience
At the right
time
What is the goal in online marketing?

7. Website visit
View content
Add to cart
Purchase
Usual conversion rate for ecom 1-2%
Ad/website funnel
Ad

8. General campaign dimensions in online marketing
General campaign dimensions in online marketing
1. Audience

9. General campaign dimensions in online marketing
General campaign dimensions in online marketing
2. Creative

10. General campaign dimensions in online marketing
General campaign dimensions in online marketing
3. Bidding

11. General campaign dimensions in online marketing
General campaign dimensions in online marketing
4. Budget

12. Budget Allocation

13. Allocating Budget

14. Modeling results per spend

15. Multi-Armed
Bandit

16. Bayesian Bandits / Thompson sampling
The number of pulls for a given lever should match
its actual probability of being the optimal lever
Sample from the posterior for the mean of each lever

18. All models are wrong,
but some are useful.

19. Improving performance

20. Revenue Optimization

21. Moving from conversions to revenue
ROAS = revenue / cost
= revenue / conversions * conversions / cost
= revenue / conversions * 1 / CPA
ROAS = return on ad spend
CPA = cost per action
Existing model
● Lot of data
● Varies fast
● Big differences
New model
● Little data
● Varies slowly
● Small real differences
● Lot of random variation

22. Modeling the revenue per purchase
Revenue follows usually a long-tailed distribution, use log-normal

23. Multilevel
Model
Account
Campaign
Ad set

24. Results 1
Common case:
ad sets don’t
really differ in
rev / conv

25. Results 2
Campaigns
differ, ad sets
not

26. WORK SMARTLY
We’re looking for new Humble Hungry Hunters
to build a world-class product company.
https://www.smartly.io/careers
Markus.Ojala@smartly.io