The importance of Marginal ROAS
Note: image courtesy of segment stream
Planning media budgets can be complicated; Last year’s run rates/ historic performance, market conditions, competitor impact, strategy changes, financial targets, etc all need to be integrated into your performance marketing planning.
One metric that is important in the decision making process is that of marginal ROAS.
In simple terms, Marginal ROAS shows the return from the next unit of spend. It tells you where the next £ invested will deliver the greatest return.
That makes marginal ROAS more powerful than blended or average ROAS, which can disguise underperforming spend hidden inside “good enough” averages. With marginal ROAS, you’re asking: if I put the next £ into this channel, how much incremental revenue will it actually generate?
How to get “the” number isn’t as easy as pulling Marginal ROAS directly out of a platform report. It requires modelling the relationship between spend and revenue per channel. Revenue attribution can be tricky to is trickier. Whether you’re using in platform conversions, (GA, Adobe, etc) or your own custom model (reported > restated numbers from SAP for example), you need a defensible way of assigning revenue back to that channel.
Once you’ve got that dataset, you model the spend<>revenue curve. This can be done at different levels of sophistication: anything from simple log trendlines in excel to advanced Bayesian regression. The slope of that curve at your current spend point is your Marginal ROAS.
It’s important to state that every channel follows diminishing returns and thus budget allocation, and understanding this at a detailed channel level is critical. The more you invest, the weaker the return from each additional unit of spend. That’s why Marginal ROAS is so powerful: it allows you to move money dynamically between channels, instead of sticking to static allocations.
When you work this way, your media planning becomes less about defending budgets and more about chasing efficiency > you will make smarter marketing mix decisions. If you’ve got an extra £50k to deploy for example, you know which channel should get it. If you need to cut, you know exactly where to pull from without losing incremental growth.
Over time, as your modelling matures, you can layer in more advanced measures; like moving from Marginal ROAS to Net Profit ROAS or even LTV-based views of incrementality. That’s where the real strategic allocation work begins; but Marginal ROAS is often the foundation you build from.
Finding the optimal media mix through trial and error can be slow + sub optimal if you do not “punch smart”. Advanced modelling and simulations can shortcut that process, showing you how different budget distributions will play out. These approaches give you a forward looking lens, instead of just reacting to performance curves after the fact.
Summary
Marginal ROAS isn’t just another metric. It’s the decision making framework that should sit at the heart of media planning (ideally supplemented by other KPIs such as NPROAS & LTV). It forces you to think about incremental return, not averages. And when you consistently shift budgets based on where the next unit of spend works hardest, you stop leaving money on the table > you build media plans that compound in efficiency over time.