Unlocking Marketing Efficiency: How Marginal ROAS Can Transform Your Startup's Strategy

mROAS: A Quick Action Summary

1. What is Marginal ROAS (mROAS): It’s the incremental return from the last dollar spent in your marketing budget, unlike average ROAS which averages out the entire spend.

2. Why it Matters: Knowing your mROAS helps avoid over-investing in channels or audiences that yield diminishing returns, making your budget more efficient and data-driven.

3. Key Takeaway: Optimizing for mROAS rather than average ROAS means your company can boost returns, cut wastage, and achieve smarter growth—ideal for scaling with agility.

4. Practical Steps: Invest in tools and data processes that track mROAS, use A/B tests to measure incrementality in marketing, and reallocate budgets to maximize marginal returns across channels.

Marginal ROAS is ESSENTIAL for Efficient Marketing Spend

As a startup CEO, CMO, CFO or investor you know that every singe dollar / euro / pound matters in the early days - and getting your growth investments wrong MATTERS!.

Unfortunately, and I've seen it too many times, relying on the wrong metrics can hide absolutely huge inefficiencies in marketing spends. This can (and does) hold back growth potential and, for some startups, makes the difference between solid growth and stagnated, performance with rising costs.

However, many companies rely too heavily on average ROAS, which can hide inefficiencies. Marginal ROAS (mROAS) provides a more precise view of where to allocate budgets by measuring the incremental impact of each additional dollar spent, a core element of marketing incrementality.

Instead of asking, “What’s my overall return on ad spend?” mROAS answers, “What’s the return on the next dollar spent?” This difference is powerful for guiding budget reallocation and sustaining effective scaling without waste.

The Key Benefits of Focusing on Marginal ROAS

1. Avoid Diminishing Returns: As budgets increase, returns on ad spend typically decrease. By focusing on mROAS, executives can identify the point where additional investment in a specific channel or audience begins to yield less return, allowing them to pivot early.

2. Optimize for Growth Marketing: Growth-focused businesses can use mROAS to spot high-impact, high-efficiency channels, making sure that every marketing dollar is spent where it’s most effective. This translates directly to better returns and sustainable scaling.

3. Data-Driven Investment Decisions: Marginal ROAS offers a data-driven framework for channel optimization. VCs and finance teams can feel confident knowing that each dollar is justified by incremental growth metrics rather than broad averages that may mask inefficiencies.

Marginal ROAS in Action: A Practical Example

Consider a SaaS company scaling its ad spend. Initially, it invests $50,000 in digital marketing with an average ROAS of 4:1, yielding $200,000 in revenue. An additional $10,000 increases revenue to $230,000.

- Average ROAS would calculate as 4:1 across the board.

- Marginal ROAS for the extra $10,000, however, is only 3:1, indicating that the return on each additional dollar is lower than the average.

By tracking mROAS, this SaaS company identifies that spending beyond $50,000 yields diminishing returns, prompting a reallocation of the extra $10,000 to another, higher-performing channel. This efficient reallocation could elevate the overall return by optimizing every new dollar spent.

The Role of Marketing Incrementality in Performance Marketing

Incrementality in marketing goes beyond marginal ROAS by measuring the incremental revenue specifically generated by marketing activities. This concept is essential for VC-backed and growth-driven companies that need clear visibility into which parts of their marketing budget are genuinely driving new business.

Tools like Meta’s Robyn framework are powerful solutions for calculating mROAS and incrementality in marketing. They use advanced modeling to predict optimal spend allocations across channels, keeping each channel’s incremental performance in balance. For CEOs and CFOs, integrating incrementality measurement with mROAS calculations means every dollar is deployed for maximum impact.

Practical Steps for CEOs, CFOs, and Investors

Implementing mROAS in your growth marketing strategy doesn’t have to be complex. Here’s how:

1. Set up Tools for Incremental Tracking: Use platforms that support mROAS analysis - like Google Analytics, Meta’s Robyn, or other advanced attribution solutions that offer real-time data on marginal returns. This data will help monitor each channel’s efficiency.

2. Emphasize A/B Testing: Conduct small, incremental A/B tests to measure the lift in revenue with each added dollar. These tests will help refine the marginal ROAS calculations for each channel and audience, providing an agile way to scale based on performance.

3. Optimize Marketing Budget Allocation: Use mROAS data to prioritize high-impact channels. If Facebook Ads produce a lower mROAS than Google Ads, reallocate funds accordingly. The goal is to ensure every dollar contributes more effectively to revenue, driving performance without overspending.

4. Track Regularly for Real-Time Adjustments: To maintain efficiency, monitor mROAS regularly. Seasonal shifts, market competition, or new ad formats can affect returns, and adjusting based on recent data helps retain optimal performance.

Why CEOs and Investors Should Care About mROAS

Focusing on mROAS offers a shift from traditional ROAS, enabling companies to make agile, data-driven budget decisions that align with growth objectives. Here’s why it matters:

- Better Budget Efficiency: Marginal ROAS ensures that every marketing dollar is accountable, reducing wasted spend.

- Stronger Performance Marketing: For growth marketing initiatives, mROAS keeps spend allocated to channels driving the highest incremental returns.

- Enhanced Investor Confidence: For VCs and board members, mROAS demonstrates that marketing funds are tied directly to growth, providing transparency in return expectations.

By centering on mROAS, your team can more confidently scale campaigns without the risk of overspend, supporting sustainable growth while maximizing returns.

Make mROAS Work for You

Integrating marginal ROAS into your marketing decisions transforms budget allocation from broad averages into targeted, high-impact investments. By focusing on marketing incrementality and performance metrics like mROAS, CEOs, CFOs, and investors can build a data-driven growth strategy that optimizes every dollar, accelerates efficient growth, and creates a foundation for scalable, performance-oriented marketing.

By adopting mROAS in your budgeting and performance marketing, you’ll be better positioned to capture incremental growth that translates directly into a healthier bottom line and scalable success.