Ad Spend ROI: How to Optimise Meta & Google Ads for Maximum Returns
The promise of digital advertising seems straightforward: spend more, get more customers. Yet for many businesses, particularly in the direct-to-consumer (DTC) space, this linear relationship proves frustratingly elusive. As marketing budgets expand, returns often diminish, leaving marketers and founders grappling with a complex optimisation challenge that few truly understand.
Diminishing returns occur when increases in ad spending progressively reduce performance. For example, doubling your budget from €1,000 to €2,000 might not double your conversions but instead, you might see only a 50% increase in results. This comprehensive guide explains the science and shows how to optimise your Meta and Google Ads campaigns to maintain efficiency while scaling your advertising budget.
The Hidden Cost: Common Signs of Diminishing Returns in Digital Advertising
Rising cost per acquisition (CPA)
Decreasing return on ad spend (ROAS)
Higher frequency rates
Lower click-through rates (CTR)
Increased CPMs (Cost Per Mille)
Consider Bloom & Wild, the UK-based flower delivery service. During their early growth phase, they could acquire customers through Meta ads at approximately €18 per acquisition. The strategy seemed clear: scale up spending to accelerate growth. However, as their daily budget grew from €1,000 to €5,000, their cost per acquisition didn't remain static – it crept up to €28, then €35, fundamentally altering their unit economics.
We discovered that scaling wasn't just about having more budget. This insight applied to several European DTC brands. Understanding the layers of the addressable market and how acquisition costs change while moving through was important.
The Mathematics of Diminishing Returns
The principle of diminishing returns in digital advertising follows a predictable pattern. Analysis of over 100 European DTC brands reveals a consistent trend: for every doubling of ad spend, the incremental return typically increases by only 60-80%, not 100% as many might expect.
Take a typical beauty brand selling €50 skincare products:
An initial €1,000 spend might yield 50 customers (€20 CPA)
Next €1,000 typically yields 40 additional customers (€25 CPA)
Following €1,000 often brings 30 more customers (€33 CPA)
This degradation of efficiency occurs for several reasons, each compounding the challenge:
Market Saturation
The most obvious factor is market saturation. Premium pet food brand Edgard & Cooper experienced this firsthand. Their initial campaigns targeted highly engaged pet owners who regularly purchased premium products. As they scaled, they necessarily expanded to less-qualified audiences, increasing their customer acquisition costs by 40% over six months.
Audience Fatigue
Menschen & Möbel, a German furniture retailer, discovered that even within their core audience, repeated exposure led to declining engagement. Their data showed click-through rates dropping by 15% for users who had seen their ads more than four times in a week, regardless of creative variations.
Competitive Pressure
Brands often encounter increased competition for the same audience segments as they scale. One French fashion retailer found their CPMs (Cost Per Mille) increasing by 25% during peak trading periods, simply due to competitive pressure in the auction marketplace.
Strategic Implications for Brands
Understanding these dynamics has profound implications for growth strategy. Smart brands are adopting more sophisticated approaches:
The Layered Spending Approach
Leading brands now segment their spending into layers:
Core Performance Layer (30% of budget)
Focused on highest-intent audiences
Strict ROAS targets (typically 3.0+)
Continuous optimisation
Strategic Growth Layer (50% of budget)
Broader audience targeting
Acceptable ROAS decline (2.0-3.0)
Regular creative refreshes
Brand Building Layer (20% of budget)
Awareness-focused campaigns
Longer-term measurement horizons
Higher tolerance for initial inefficiency
Creative as a Counterforce
Some brands have found that creative innovation can partially offset diminishing returns. Belgian eyewear brand Odette Lunettes maintains consistent acquisition costs by developing highly targeted creatives for each audience segment they reach as they scale.
"Fresh creative isn't just about avoiding ad fatigue," explains Creative Director Marc Van Hove. "It's about speaking differently to different audience segments. What resonates with your early adopters won't necessarily work for a broader audience."
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Practical Implementation: A Framework for Growth
Successful navigation of diminishing returns requires a systematic approach:
1. Establish Clear Baseline Metrics
Before scaling, document:
Current CPA by channel
ROAS by audience segment
Frequency metrics
Audience saturation levels
2. Define Scaling Triggers
Create specific criteria for budget increases:
Minimum 7 days of consistent performance
Maximum frequency levels not exceeded
Clear audience headroom available
Creative testing showing strong results
3. Implement Staged Increases
Rather than dramatic budget increases, use incremental steps:
20% increases maximum
Minimum 2-week evaluation periods
Clear regression criteria for pulling back
4. Monitor Leading Indicators
Watch for early warning signs:
Rising frequency metrics
Declining click-through rates
Increasing CPMs
Audience overlap issues
How to Calculate Your Ad Spend Efficiency
Follow these steps to measure your advertising efficiency:
Calculate your baseline metrics:
Current CPA = Total Spend ÷ Number of Conversions
ROAS = Revenue ÷ Ad Spend
Frequency = Impressions ÷ Reach
Track efficiency ratio:
Efficiency = (% Increase in Results) ÷ (% Increase in Spend)
If the ratio falls below 1.0, you're experiencing diminishing returns
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5 Practical Strategies to Combat Diminishing Returns
1. Implement Layered Budget Allocation
Split your budget across three key areas:
40% - High-performing core campaigns
40% - Audience expansion initiatives
20% - Testing and optimization
2. Optimise Audience Targeting
Follow this targeting expansion sequence:
Start with core audiences (1% lookalike)
Expand to similar interests
Test broader targeting with small budgets
Monitor performance at each stage
3. Refresh Creative Assets Regularly
Maintain creative effectiveness by:
Testing new ads every 2 weeks
Replacing the bottom 20% performers
Creating audience-specific variations
Monitoring creative fatigue metrics
4. Manage Frequency Caps
Set appropriate frequency limits:
Meta: Maximum 2 impressions per 48 hours
Google: Maximum 3 impressions per week
Display: Maximum 5 impressions per week
5. Scale Budgets Systematically
Follow this budget scaling framework:
Start with €50/day baseline
Increase by 20% when ROAS > target
Monitor for 7 days before the next increase
Pull back if CPA rises >15%
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Step-by-Step Scaling Process
Week 1: Establish Baseline
Set initial daily budgets
Meta: €30-50 per ad set
Google: €50-100 per campaign
Document baseline metrics
Week 2: First Scale Test
Increase budgets by 20%
Monitor hourly for the first 24 hours
Track performance changes
Document results
Week 3: Optimisation
Analyze performance data
Adjust targeting if needed
Refresh underperforming creatives
Plan the next scale test
Week 4: Evaluate and Expand
Calculate new efficiency metrics
Decide on further scaling
Test new audience segments
Update creative strategy
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Real-World Example: eCommerce Case Study
A fashion retailer scaled their ad spend following this process:
Starting Point:
Daily budget: €100
CPA: €15
ROAS: 3.5
Weekly sales: 45 units
After 4 Weeks:
Daily budget: €300
CPA: €18
ROAS: 3.1
Weekly sales: 115 units
Key Learning: Gradual scaling maintained efficiency while growing sales.
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Advanced Tips for Maintaining Performance
Meta Ads Optimisation
Use CBO (Campaign Budget Optimisation)
Test automatic placements
Implement broad targeting tests
Monitor audience overlap
Google Ads Efficiency
Use Smart Bidding strategies
Implement audience layering
Test Performance Max campaigns
Regular search term analysis
Warning Signs to Watch
Monitor these metrics daily:
CPA increases >15%
Frequency exceeds 2.0
CTR drops >20%
Audience reach plateaus
CPM rises >30%
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Action Plan for Performance Drops
When performance declines:
Immediate Actions:
Reduce daily budgets by 20%
Pause bottom performers
Check frequency caps
Review audience overlap
7-Day Fixes:
Refresh creative assets
Test new audiences
Adjust bid strategies
Update negative keywords
Monthly Optimisation Checklist
Review performance trends
Analyse audience saturation
Plan creative refreshes
Update budget allocation
Test new targeting options
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Future Considerations
The reality of diminishing returns in digital advertising is a call for more sophisticated thinking about scale. Successful brands understand and plan for diminishing returns, building sustainable growth models that acknowledge this fundamental market dynamic.
For modern DTC brands, the key lies in building a marketing strategy that accounts for them from the start. This means sophisticated budget allocation, creative innovation, and most importantly, a clear understanding of when to push for growth and optimise for efficiency. The most successful brands will master this balance, using diminishing returns as a framework for making smarter decisions about growth and scale.
Managing diminishing returns requires constant monitoring and optimisation. Focus on gradual scaling, regular creative refreshes, and maintaining efficient frequency levels. Use the frameworks and checklists provided by Brand Content Strategy to optimise your campaigns.
The new emerging factors that will influence diminishing returns:
Privacy changes affecting targeting precision
Artificial intelligence improving optimisation capabilities
New ad formats potentially alter engagement patterns
Platform consolidation that affects competition dynamics
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FAQs About Ad Spend Optimisation
Q: How quickly should I scale my ad spend?
A: Increase budgets by a maximum of 20% per week while maintaining performance metrics.
Q: What's a good ROAS target when scaling?
A: Aim for ROAS no lower than 80% of your baseline performance.
Q: How often should I update creatives?
A: Test new creatives every 2 weeks, replacing the bottom 20% of performers.
Q: When should I pull back on spending?
A: Reduce spend when CPA increases >15% or ROAS drops below target for 3+ days.
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Remember: Successful scaling happens with smart spending. Monitor your metrics closely and adjust your strategy based on performance data.