> The new business line will cost about $2M in software dev, and $3M for the new facility. The advertising budget? $40,000,000 (annual).

The reason the advertising budget is such a high number and a recurring charge is that effective advertising returns an ROI on each dollar spent.

If the software budget was increased 10X to $20 million, would the company get 10X as many customers? No.

What about the facility? If you 10X the facility budget to $30 million would you get 10X as many customers? No.

However, advertising is a customer acquisition activity. Every dollar you spend on advertising provides additional customers. This is saturable, but the ceiling is very high. Much higher than spending on software or facilities.

The reason your ad budget isn’t so high isn’t because Google and Meta invented the discoverability and distribution problems or basic economics. It’s because it has been determined that acquiring new customers via advertising has a high ROI and therefore it’s a smart move to pour as much money as possible into customer acquisition.

If every $1 you spend on advertising produces $2 in customer LTV then your company should be maximizing ad spend until evidence of saturation starts appearing.

This commonly frustrates engineers who think it’s a wasted investment. The question is: Compared to what? If you could have the same number of customers and same amount of revenue without advertising then you should do that! However, you can’t. This isn’t a licensing fee that’s being paid. It’s putting money into a machine that returns more dollars back than you put into it.

I doubt the ROI would be so high if organic results stood any chance.

The ROI on bribes is very high too, but we haven’t legalized those (officially).

I had this exact epiphany when I ran a side business selling niche widgets. Every dollar I spent on Facebook ads returned me $5 in revenue (at 40% margin) and it wasn't obvious how much I could spend before that stopped being true.

it surprises me how many people simply don't get the point. they say "they make more money this way, so it's ok". no big picture at all.

That misses the point though. Google and Meta have designed systems which capture nearly the entire surplus. In a non-monopolistic environment you'd expect somebody to be willing to step in at a bit less than Google's rates and offer the same outcomes.

This is very correct, the only thing I as an engineer care about is that we rigorously optimize our spend to get the best possible CAC (Customer Acquisition Cost) It’s an incredibly hard problem and has many variables, that’s why the platforms charge what they do, they allow you to work with these variables in a somewhat approachable way.