Most growth teams believe they are making disciplined, data-led budget decisions. Dashboards are reviewed weekly, performance reports are circulated widely, and ROI figures are used to justify spend across channels. On the surface, this looks like a mature marketing operation.
In practice, however, many of these teams still misallocate budget, overspend on declining channels, and struggle to scale efficiently. The issue is rarely a lack of data or effort. It is a flaw in how ROI itself is understood and applied.
The majority of teams optimise around average ROI, when the decisions that determine growth success depend on marginal ROI. This distinction may sound academic, but it has profound implications for how budgets are set, defended, and reallocated under pressure.
Marginal ROI thinking is one of the most important disciplines in modern growth marketing, and one of the least widely applied.
Why Average ROI Is a Weak Decision Tool
Average ROI answers a retrospective question. It tells you how much return a channel has generated across all historical spend. While this is useful for reporting and high-level performance reviews, it is a poor guide for forward-looking decisions.
The core problem is that average ROI conceals variation.
It Blends Efficient and Inefficient Spend
Most channels deliver their strongest returns at lower levels of investment. As spend increases, efficiency typically declines due to saturation, audience fatigue, or auction dynamics. When these phases are blended together, average ROI masks the point at which a channel stopped being efficient.
This creates a false sense of confidence and encourages teams to keep investing simply because the headline number still looks acceptable.
It Ignores Diminishing Returns
Growth is rarely linear. The relationship between spend and outcome usually follows a curve, not a straight line. Average ROI smooths this curve and removes the visibility needed to understand where incremental spend is genuinely productive and where it is not.
As a result, teams scale channels past their optimal range without realising that additional budget is delivering weaker and weaker returns.
It Encourages Reactive Scaling
When leadership sees a channel with strong historical ROI, the natural response is to scale it. Without understanding marginal returns, this often means pushing spend into inefficient territory, which erodes overall performance and creates confusion when growth stalls despite higher budgets.
What Marginal ROI Actually Reveals
Marginal ROI answers a far more relevant question for decision-makers. It asks what return the next pound of spend is likely to generate.
This forward-looking perspective shifts the focus from historical performance to future impact. Instead of rewarding channels for what they have done, marginal ROI evaluates them based on what they can still deliver.
Used correctly, marginal ROI helps teams understand when a channel is approaching saturation, where incremental investment still creates meaningful growth, and where further spend actively reduces overall efficiency.
This is the difference between reporting on performance and managing it.
How Marginal ROI Changes the Quality of Decisions
When growth teams adopt marginal ROI thinking, budget conversations become more disciplined and far less political.
Scaling decisions are no longer driven by past averages or internal preferences, but by evidence of incremental impact. Budget reductions become targeted and strategic, rather than blunt exercises that damage high-performing areas unnecessarily. Conversations with finance become grounded in logic and trade-offs, rather than defensive explanations.
Most importantly, teams gain clarity on where growth is actually coming from, rather than where it used to come from.
Practical Ways to Apply Marginal ROI Analysis
Marginal ROI does not require complex modelling to be useful. The key is to move beyond blended reporting and introduce structure into how performance is assessed.
Spend Band Analysis
One of the simplest methods is to break channel spend into defined tiers and calculate ROI for each band separately. This reveals how efficiency changes as investment increases and highlights where diminishing returns begin to appear. Over time, this approach creates a clear picture of how far each channel can be scaled responsibly.
Incremental Budget Testing
Controlled increases or decreases in spend provide direct insight into marginal returns. By adjusting budgets in small increments and measuring the incremental change in pipeline or revenue, teams can isolate the true impact of additional investment. This method is particularly effective when combined with stable baselines and consistent measurement periods.
Saturation Curve Modelling
Plotting spend against outcomes over time often reveals a curve rather than a straight line. The slope of this curve represents marginal ROI. As the slope flattens, efficiency declines. When it turns negative, additional spend is actively harming overall ROI. Visualising performance in this way makes inefficiencies difficult to ignore and easier to act on.
Deciding Where the Next Pound Should Go
Marginal ROI thinking brings clarity to one of the most difficult questions CMOs face. Where should the next pound be invested, and where should it not.
Additional budget should flow towards channels that still show strong marginal returns, sit earlier in their scaling curve, and continue to perform efficiently under incremental increases. Long-term demand generation channels that reduce future acquisition costs should also be protected, even if their short-term ROI appears modest.
Conversely, spend should be paused or reduced in channels where marginal ROI is declining, where saturation effects are visible, or where incremental investment fails to produce meaningful revenue uplift.
This discipline ensures that growth is driven by evidence rather than habit.
Why Many Teams Avoid Marginal ROI Thinking
Marginal ROI exposes uncomfortable truths. It reveals inefficiencies that average metrics allow teams to overlook. It challenges legacy allocations and forces difficult conversations about underperforming channels.
For some organisations, this level of transparency feels disruptive. But avoiding marginal ROI does not protect performance. It quietly erodes it.
Teams that embrace this discipline tend to allocate capital more effectively, adapt faster under pressure, and deliver more predictable growth over time.
Conclusion
Growth does not fail because teams lack data. It fails because they rely on metrics that describe the past rather than guide the future. Average ROI explains what happened. Marginal ROI explains what to do next. For CMOs and senior marketing leaders tasked with delivering results under increasing scrutiny, marginal ROI thinking is no longer a nice-to-have analytical upgrade. It is a core leadership discipline.
Join the Growth Authority Community
If you’re a CMO or marketing leader, we’ve created a community called Growth Authority to help you stay ahead of the curve. Inside, you’ll gain access to proven frameworks, dashboards, and tested playbooks to help you lead confidently in this new era of marketing. This private community is built exclusively for senior marketers who want early access to cutting-edge strategies before the rest of the market.
Be among the first to access these resources - Join the Waitlist.