• EOS® Implementation Expert

Law Of Diminishing Returns

The marketing law of diminishing returns describes a predictable pattern: as you continue to increase investment in a marketing channel, each additional unit of spend produces less incremental impact than the previous one. In practical terms, early dollars are highly efficient; later dollars are increasingly wasteful.

Ad spend vs ROI graph

What is it?

The Law of Diminishing Returns in marketing states that, assuming the marketing strategy, creative content, and target audience remain unchanged, each successive increase in marketing expenditure will yield progressively smaller increases in desired outcomes (e.g., leads, conversions, or revenue).

Understanding the Problem

Why Diminishing Returns Occur in Marketing

Audience Saturation

  • You reach the highest-intent prospects first
  • Incremental spend pushes ads to:
  • Lower-intent users
  • Less relevant lookalikes
  • Repeat exposures to already-converted users

Frequency Inflation

  • Additional spend increases impressions per user, not the number of new users.

  • Does not increase the number of new users

  • Marginal impressions drive recall, not action
  • Diminishing marginal utility per impression

Auction Dynamics

  • Higher budgets push into more competitive placements
  • Significantly elevated CPMs and CPCs
  • Win more auctions by paying more
  • Not by being more relevant to users

Creative Fatigue

  • Static messaging loses effectiveness over time
  • Click-through rate declines progressively
  • Cost per acquisition rises with exposure
  • Each channel has finite demand volume

Indicators You’ve Hit Diminishing Returns

You are likely past the optimal scale when you observe:

  • CPA/CPS is rising faster than volume growth

  • Frequency > 3-5 (varies by channel)

  • Revenue plateaus while spend increases

  • CPA/CPS is rising faster than volume growth

  • Frequency > 3-5 (varies by channel)

  • Revenue plateaus while spend increases

Key concept: Blended performance can look acceptable while incremental performance is negative.

Critical Distinction

Incremental vs Blended Performance

MetricBlendedIncremental
DefinitionAvg. across all spendImpact of the last dollar
Common ErrorScaling based on blended ROASIgnoring marginal efficiency
RealityHides saturationReveals diminishing returns

Rule:

You should scale until incremental CPA ≥ allowable CPA, not until blended metrics look bad.

Simple Example

Blended CPA looks acceptable, but marginal CPA collapses.

Spend

  • $10,000

  • $20,000

  • $30,000

Leads

  • 200

  • 340

  • 420

CPA

  • $50

  • $59

  • $71

  • First $10k: $50 CPA

  • Second $10k: $71 CPA

  • Third $10k: $125 CPA

How to Manage Diminishing Returns Strategically

Diversify Channels

  • New platforms

  • New geographies

  • Upper-funnel formats

  • Partnerships or affiliates

Refresh Creative Before Increasing Budget

  • Creative iteration often resets the curve more effectively than spending increases.

Segment Audiences

  • Separate high-intent from low-intent audiences

  • Apply bid caps and frequency controls.

Use Incrementality Testing

  • Geo holdouts

  • Lift studies

  • Budget on/off tests

Expand the Funnel, Not Just the Budget

  • Brand building

  • Product education

  • Demand creation (not just capture)