ACoS is an average. Averages are useful for reporting and dangerous for decisions. The question that determines whether your next dollar of ad spend is worth it is not what your campaigns return on average, but what the next dollar returns.
Every campaign has a spend curve
As spend on a campaign increases, returns diminish. The first dollars capture the cheapest, highest-intent traffic. Each additional dollar reaches less qualified shoppers or bids up the same clicks. Plot sales against spend and you get a curve that flattens.
The average ROAS across that curve can look healthy while the last portion of spend is barely breaking even, or losing money.
The average can look great while the last dollar loses money.
Average versus marginal
Consider two campaigns at the same blended ACoS. One is early on its curve, where more spend would still return well. The other is deep into diminishing returns. A blended target treats them identically. A marginal view moves budget from the second to the first.
Marginal ROAS is the incremental sales produced by the incremental spend. It is the number that should drive allocation.
Estimating the curve
You rarely get a clean experiment, but you can get a useful estimate:
- Use historical variation in daily spend and sales for each campaign.
- Control for price changes, promotions, inventory, and seasonality, which otherwise masquerade as ad effects.
- Fit a response curve with diminishing returns, then read the slope at current spend.
- Validate with deliberate spend changes on a few campaigns before trusting the model broadly.
Allocating to equal margins
The efficient allocation is the one where the marginal return is roughly equal across campaigns. If one campaign's next dollar returns far more than another's, money is in the wrong place. Moving it until those returns converge produces more total sales from the same budget.
Setting the right target
The final step is deciding where to stop. That depends on contribution margin, not revenue. A product with a high margin can profitably push spend further down its curve than a low-margin product. For subscription brands, the true value of a first order includes expected repeat purchases, which can justify spending further still.
Blended ACoS targets are simple to manage. Marginal bidding is harder, but it is where the real efficiency gains are.