Average vs Marginal Return: Why Growth Plateaus Before Revenue Does
Average ROAS tells you how the whole budget performed. It does not tell you what the last pound, or the next one, is earning.
This is an educational comparison, not a research study. It contains no sample data or measured results; test the ideas against your own account data.
Why marginal return falls as spend rises
The first pounds in an account buy the cheapest, most intent-rich traffic. Each extra pound has to reach further: higher bids, broader queries, less ready buyers. So the return on additional spend usually falls, even while the average still looks healthy.
Where it falls depends on your market, margins and demand, so there is no universal spend level at which it happens.
Working it out with your own numbers
Compare two periods or budget levels. Divide the change in contribution before advertising by the change in ad spend. If that marginal figure is below 1.0, the extra spend cost more than it returned, whatever the average ROAS says.
Illustrative example, not client data: moving from £40k to £50k a month adds £8k of contribution before advertising. The average may still look fine, but the extra £10k returned £0.80 per pound.
Questions to ask of your own account
- • What did the last budget increase add in contribution, not revenue?
- • Is the change in contribution divided by the change in spend above 1.0?
- • Are recent gains incremental, or mostly brand and returning customers?