Meta Launches Budget Simulator That Reveals Diminishing Returns

Meta's new simulation tool demonstrates how the results of an advertising campaign are affected when the budget is increased. It openly shows for the first time the diminishing returns of digital advertising.

When the advertising budget is increased for a campaign that starts with a budget of €60 per day:

• Doubling the budget multiplies the results by 1.7
• Tripling the budget multiplies the results by 2.28
• Quadrupling the budget multiplies the results by 3.01

Increasing the advertising spend leads to a decrease in ROAS (Return on Advertising Spend) and ROI (Return on Investment) because as you increase the advertising budget, the CPL (Cost Per Lead) / CPA (Cost Per Acquisition) increases. This means you get diminishing returns on each additional unit of currency spent on advertising.

The trade-off dilemma faced in digital advertising is choosing between seeking a good margin at the cost of sacrificing volume or seeking volume at the cost of sacrificing margin. These are the primary options presented, indicating a balance must be struck between profitability and scale.

To improve advertising effectiveness without solely increasing the budget, the text suggests working extensively on the creative aspect of the ads. This involves being able to multiply the number of ads you create, which can lead to better performance even if you only have a few ads to start with.