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Marginal ROAS: how to scale ads with diminishing returns

A practical guide to marginal ROAS: why average ROAS misleads at scale, how diminishing returns work, and how to pick a profit-maximizing spend level.

Updated 2026-02-16

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Marginal ROAS Calculator
Example: $50k spend, $200k revenue, 40% margin, exponent 0.75

Average ROAS vs marginal ROAS

Average ROAS is total revenue divided by total spend. Marginal ROAS is the incremental revenue generated by the next dollar of spend. Scaling decisions should be based on marginal profit (or marginal ROAS vs break-even), not average ROAS.

Marginal ROAS formula

Marginal ROAS = incremental revenue / incremental ad spend.

How to calculate marginal ROAS (step-by-step)

  • Increase spend by a small amount for a test period.
  • Measure incremental revenue caused by that extra spend.
  • Divide incremental revenue by incremental spend.

Marginal ROAS example

If an extra $10,000 in spend generates $18,000 in incremental revenue, marginal ROAS = 1.8.

Why diminishing returns happen

  • You exhaust the highest-intent users first (audience saturation).
  • Creative fatigues and CTR drops.
  • Incrementality declines as you capture more demand (more cannibalization).

A simple decision rule

Scale until marginal profit is ~0. Equivalent: scale until marginal ROAS is close to break-even ROAS after variable costs.

How to use this in practice

  • Run incrementality tests as spend grows; platform ROAS often overstates lift.
  • Estimate a response curve per channel (search vs paid social vs retargeting).
  • Use scenario analysis: optimistic/base/conservative exponent and margin.

FAQ

What's a good marginal ROAS target-
It depends on your contribution margin and whether you include fixed costs. As a starting point, compare marginal ROAS to break-even ROAS (1 / contribution margin) and add buffer for uncertainty.
Can marginal ROAS be higher than average ROAS-
Yes at low spend or when you're ramping into a new audience/creative. But as spend scales, marginal ROAS typically trends downward due to saturation.

More in paid ads

Paid ads measurement hub: ROAS, MER, marginal ROAS, and incrementality
A practical hub for paid ads measurement: connect ROAS to profit, use MER for top-down truth, watch marginal ROAS for scale, and validate incrementality with holdouts.
MER (blended ROAS): how to use it without fooling yourself
A practical guide to MER: what it is, how it differs from ROAS, how to compute break-even/target MER, and common pitfalls.
Attribution vs incrementality: what to trust, when, and how to test
A practical guide to attribution vs incrementality: common attribution models, window pitfalls, how MER/marginal ROAS fit in, and how to run holdout/geo tests.
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