Why ROAS Drops When Scaling Ads and How to Push Through

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There’s an illusion that happens when you’re scaling up that typically prevents you from scaling to a truly big level.

Whether you’re organic, just starting off with paid advertising, or even if you consider yourself a paid advertising veteran to a degree, but you still haven’t just scaled big yet – I want to be really clear when I say this.

There’s a big problem that happens a majority of the time where when you start scaling up, your ROAS will start to creep down a little bit.

And as a result of that, you will stop scaling.

And even more often, you’ll pull back that spend to what it was. By pulling back, you’ll see your ROAS go back up.

And you’ll think to yourself, “Well, this is my pocket. This is where I have to stay. I don’t get the opportunity to go bigger than this based on whatever you’re currently doing.”

And I want to be fair and saying there are several solutions that we’ll talk about in this piece because you might have something that’s wrong. Something might be messed up that is actually lowering your ROAS.

But here’s what’s interesting. That’s a minority of the time that something is just broken and preventing ROAS and growth as you scale.

Members of My Inner Circle are already scaling to $1M+ and beyond. This isn’t for beginners. It’s only for operators already at $100k+ per month who want proven strategies, speed, and focus. If that’s you, apply here.

Understanding the Trough of Scaling and Temporary ROAS Decline

What happens a majority of the time? It’s called the trough of scaling.

As you push up to a higher level of daily spend, you typically start to reveal what the true ROAS is. Research shows that a good ROAS typically ranges from 2:1 to 4:1, meaning you generate $2-4 in revenue for every $1 spent on advertising.

And in this piece, we’ll talk about how to push through that trough and what’s on the other side of it.

You have to be able to do the math to justify that even with a lower ROAS, a higher amount of spend going out per day can still make you far more money once you find what true baseline ROAS is.

There’s a lot that we’re going to uncover here. If this sounds applicable to you, make sure you pay close attention because this will be valuable.

If you’re new to the site, welcome in. My name is Jeremy Haynes. All we talk about around here is scaling up to million-dollar months and then tacking on the next million a month after.

So whether you’re hitting your first mill a month or whether you’re trying to tack on the next million, you’re in the right place.

We don’t make any income claims, though. Everything that we sit here and talk about is just lessons, education, and entertainment purposes. Things from clients that have been there, done that that we’re handing down to you in these pieces of content.

Again, along the same lines of there’s no income claims, no earning potential. We have no idea who you are and whether you have literally any probability to go out there and make money.

Ideally, you’re sitting here and making a couple hundred grand a month already, or again, you’re already at that million a month trying to tack on the next million. You’re in the right place if that’s you.

If not, this site’s not really built for people who are at smaller levels than that. You might be able to learn some lessons by reading, but just keep in mind who I’m actually sitting here talking to.

If you are already a subscriber, welcome back. Absolute pleasure to have you. Without further ado, let’s get started.

How Return on Ad Spend Changes with Increased Daily Budget

So this illusion, right, we call it the trough of scaling. Here’s how it looks.

This trough occurs to almost everybody. Like, it happens a majority of the time.

It looks like this. Your ROAS is at a stable level and then you scale your daily spend and your ROAS starts to go down and then as a result of that you end up thinking to yourself, “Oh my goodness, I am getting a lower ROAS as I scale. I must be doing something wrong.”

And I want to be fair and saying just to be clear, yes, there might be some things and we’ll talk about those things as we do in pretty much every piece on this site about what things could be going wrong and how you could improve those.

But what I want to start with is that this illusion is that the trough and the number goes down forever.

So if we truly chart this out and we look at it for what it is, our ROAS being plotted on this chart and the lower axis being time.

So as we’re at a smaller level of daily spend, we see whatever ROAS we see and then as we start to push up our daily spend, our ROAS might start to go down a little bit.

The illusion is that it just continues to push down forever. It does not.

And that’s where the illusion lies.

You have to understand that there is a floor to the ROAS where it’s probable to hold as you reach higher and higher and higher and higher and higher perpetual daily levels of ad spend.

Why New Ad Accounts Get Artificially High Initial ROAS

When you first – you have to understand how the system works here with the ad channels.

Think about if you coded the ads manager for whatever your preferred channel is – most probable to be Facebook and Instagram otherwise known as Meta.

Now in addition to that, you might be running on Google ads. You may be on TikTok. Some of you are even potentially on LinkedIn.

If you coded the ad channel, I mean, you literally created it. You hired a fleet of developers, your goal and intention is extremely clear. Make as much money as you possibly can.

However, you have to be able to activate a customer just like any other business that exists.

So when somebody comes on as an advertiser for the apparent first time of them advertising, what would you want to have coded into the platform itself to be probable to occur?

You would want them to get as high of a result as possible, as fast of a result as possible, and ideally, especially when they’re first starting, a consistent result.

Now, most people when they first start advertising, they don’t even have the ability to spend a ton of money on the paid ads because those ad channels also limit how much you’re able to put out in ad spend.

It could be a $50 a day limit. It could be a couple hundred a day limit. It might even be a few low thousands of dollars per day in a limit.

But if it’s a brand new ad account, a brand new business manager, and you go to start running ads, it’s probable to be somewhere in the range of $50 a day to all the way up to maybe $250 a day.

And that is because that’s where they see from a data-driven perspective, all the accounts that they sit there and manage when people first start, that’s the typical range that most small businesses start with.

And considering that small businesses are the dominating customer type for these ad channels, they build it around those types of companies.

So when you first start, what’s most probable to occur is that you are going to get great results. Industry data shows that ROAS performance varies significantly by campaign objective and industry, with sales campaigns typically generating higher returns.

They’re going to be a low cost per result. And because of your daily spend, you’re also naturally going to bias towards a cheaper cost per result.

And ideally, you make great money off of the types of people who, by the way, when you first launch an ad, even if it’s a brand new pixel, they do their absolute best to try to put you in front of the people that are most probable to convert.

And so you have a really high set of probabilities in your favor, especially when you first launch, to get positive results, to get to the point where you have the greatest ROAS that you’re likely ever going to experience.

In Market Demographics vs Needs Convinced Audience Segments

I get people all the time that are like, “Oh, dude, I was spending $100 a day, 3K a month on paid ads. I had a 20 to 1 ROAS and then I tried to scale up to 10K and my ROAS went down to like six or seven. So I pulled it back to 3K and my ROAS went right back up.”

I have people all the time too that are at much higher levels of spend that experience the same exact thing where they have a large in-market demographic – which we’ll talk about here shortly.

We’ve talked about it many times over – comes from a great book called The Ultimate Sales Machine by Chet Holmes.

And this visual, again, if you’re a repeat reader on this site, you know that we love this lesson from Mr. Chet Holmes.

And the way that he articulates it is just a tad bit different than me in terms of the numbers that he applies to each one of these layers. But we agree on this first one specifically which we call the in-market demographic.

And in-market demographics usually – this is about 3 to 4% of a given market.

Now I’m going to just put this in perspective real quick. In-market customers are the most probable people to buy comparatively to anybody else that exists out of the rest of the customers that we could probably sell to.

And as we scale we are reaching technically colder and colder and less probable people to convert as we spend more and more money.

Once we get out of that in-market audience, we reach this next demographic which can be upwards of 30% of an entire market. This specific layer is what we call “needs convinced.”

Now, this specific category, very important to note, the ROAS as you work your way up this ladder technically drops a bit.

So as we get to this point where our ROAS is at the highest that it’s possibly going to be – down here in the in-market demographic, this is where we’re probable to make the most money.

Once we get to needs convinced, we drop on the probable ROAS that we’re able to produce. Studies show that ROAS benchmarks differ dramatically across industries, with some sectors achieving substantially higher returns than others.

How Audience Temperature Affects Return on Ad Spend

And here’s the thing. When you get to these broader categories, you have in that third layer what we call mass market.

Mass market are people who don’t even identify as customers. These people don’t even have any inclination towards buying whatever it is that you have.

Not only do they need convinced, they in a purest way possible of articulating it, don’t even have an inkling inside of them saying, “I need to buy that guy’s stuff.”

And then you have people who aren’t even probable to buy. These are just non-customers. These are people who will truly never convert no matter how much money you throw at them.

Now, as you reach colder and colder demographics, you are more probable to have to spend more money in order to convert them, which naturally means you’re going to have a lower ROAS.

So back to the point I’m attempting to make. When you look at big niches – I’ll give you an example of a few.

If you look at the sales demographic, if you look at anything related to stocks, if you look at real estate as an example of another big one, if you look at the health and wellness category as another massive one – the total market addresses how many people are going to be in that 3 to 4% in market demographic.

Aka it directly impacts your probability to stay at an extremely high ROAS over a long duration of time.

Why Market Size Determines Scalable Ad Spend Potential

And certain markets are so small.

So I had a guy, he recently did some paint work, and this guy’s an incredible painter, and he decided at one point he wanted to run some Facebook and Instagram ads.

He threw $10 a day at the platform. And he got all the way up to about 20 bucks a day at one point.

And this guy, as small of an advertiser as he was, he has a really, really specific geographic area that he’s targeting. He’s targeting Miami, Florida.

He’s not even going all the way up to Fort Lauderdale or other parts of South Florida, as far up as West Palm or Boca Raton, etc. Literally, just Miami.

And this guy, he doesn’t even want to travel to West Miami. It’s more so pretty much everything close to the water down here.

Not only that, he’s targeting people who are commercial business owners, commercial tenants, residential homes, the big buildings that you see down here. He’s just looking for people that he can paint for.

And this is traditional painting – painting the floor, painting our fence outside, doing some prime and prep work on some walls that we had stuccoed over.

We have a big mural on the external part of our facility for our two front-facing street walls. He primed and painted that with a base layer before the muralist came in. Those are the kind of jobs this guy’s doing.

And I’m paying him like at most couple grand for each one of these jobs. Think like maybe high couple hundred dollars all the way down to like maybe 4-ish K.

Now, this guy’s specific demographic – truly think of how tiny that little in-market customer demographic is.

In market in this case meaning, “Hey, I need paint work right now. I want somebody to come over here and paint for us. I’m a customer who actively identifies as I’m looking for a painter to come over and do professional high-quality work.”

That in-market demographic relative to that specific geographic restriction and in addition to that, relative to the fact that he’s looking for a certain price per job is going to shrink that market down to without exaggeration, really think about it, probably dozens of people in that specific market at a given time.

Well, his ads, even at a measly $10 a day or $20 a day, are at the least going to reach hundreds of people per day.

So right away, he has the highest probability when he first launches to clear out the in-market demographic.

And then right after all those people are cleared out, he’s naturally going to start reaching into the needs convinced demographic, which are people who, you know, they have something that they could justify needs painted, but they’re not thinking about it at all. They’re not looking for it right now.

If you showed them something and justified why something would need painted, maybe then they’d say, “Yeah, that makes sense. Like, I’ll hit this guy up.”

You know, but again, they need convinced. They’re colder. They’re not actively raising their hand and saying, “Come do my paint job.”

You understand?

Geographic Targeting Case Study and Cost Per Lead Scaling

So anyway, back to my point. This guy when he first launches, he’s getting super cheap cost per lead. It’s like $2 per lead for in-market customers.

People ringing on the phones in his lead form that he ran on Facebook just ready to buy, have the problem.

And then he goes and he’s excited and he starts to scale. He goes to 20 bucks a day instead of 10 bucks a day.

Same thing. He stays in that same pocket and his cost per lead went up like a negligible amount. It’s like maybe $3-5 per lead now.

So a little more than it was, which by the way is already a 100% increase from $2.

And then as time continues to pass, he goes from $20 a day and he tries to kick it up further to 50 bucks a day.

Now, over the course of a week, he’s reaching thousands of people. And out of those thousands of people, you could technically justify not only has he already exceeded the quantity that would be probable in that needs convinced demographic.

He’s also likely reaching some people in the broader market of mass market, where those people need convinced entirely.

They’re not even thinking to themselves, “Oh, I need a paint job. If I saw the opportunity to do it, I’d consider it.”

They fully need convinced on why they would even consider this, why they would think about it, why they would do it.

Those kind of people.

His cost per lead creeps all the way up to about $17 per lead.

Now he’s using comparison bias in this example and he’s using this trough that we talked about where yes, technically at $2 a lead and the level of deal that he was getting from those leads, he’s making tons of bucks, dude.

The guy’s clearing hand over fist on this little 10 bucks, 20 bucks a day that this guy’s spending.

And because he’s making a lot of money off of it, again, he looks at his ROAS for what it is, he thinks that’s what’s going to hold forever.

That’s the illusion at such a baby level of money.

How Comparison Bias Stops Advertisers from Scaling Profitably

If you start tying all these lessons I’m sitting here telling you together, you can clearly see how this would prevent scale easily because he’s going to operate off the illusion of comparison bias in this example.

As he scales up 50 bucks a day, 100 bucks a day, and he sees his cost per lead go to $17 – what he failed to do was just realize he’s still making money hand over fist.

The guy’s still absolutely clearing cash. He’s making a ton of money still off of that little bit of daily money that he was putting out on ad spend.

But comparison bias held him back in that example.

In reality, think of it like this. If he would have gotten to the point where he spent $1,000 a day, $5,000 a day, $10,000 a day – dude, this guy would have a painting empire.

He’d be able to expand to every Florida market and then all throughout the South and then potentially all across the literal United States if he could have just continued the scaling game.

But instead, in that particular case, comparison bias held the man back.

Now, here’s the point I’m attempting to make. When you initially experienced the trough, when you initially have this specific period of time where you have a ROAS that held, you started to spend more money and you saw it drop – that is the number one period of time when somebody says, “Nope, something must be wrong. I got to dial this back. I got to pull this back. Let’s reel it back in.”

In comparison, again, just to be clear, if he would have in that painting example, continued to spend more money, it’s very obvious to everybody who can do some basic math that that man, if he would have gotten to the point where he could spend $1,000 a day, $2,000 a day, $5,000 a day, and maintained even like a $50 cost per lead that entire time – again, making money hand over fist with those analytics if he would have put that into a financial model.

But he decided instead to cut it off completely because he used comparison bias and the trough took advantage of him.

And this happens so many times over. It happens in info product businesses, service-based businesses, product based businesses, anything high ticket especially. This happens all the time.

And I want to be fair in saying yes, sometimes as you scale your ROAS is going to fall from other variables that you absolutely can influence and fix to raise your ROAS back up again.

Like yeah, your cost per call might have gone up not because you changed from in-market demographics to needs convinced.

It might have just gone up because Meta released a new algorithm called Andromeda recently that you have no idea about and that you’re not following the best practices of even if you are aware of it.

You might have something as simple as your page rate, your opt-in rate, your total conversion rate, your show rate – some specific statistic and your funnel itself has messed up and you’ve just failed to do a bottleneck analysis.

Identify which key step in your advertising and sales process is contracted and placing the necessary attention on it and performing improvement-oriented actions to open up that contraction and allow more people to come through to get more ROAS.

Simultaneously Scaling Ad Spend While Optimizing Conversion Rates

And the game here is that you ideally can do both.

So many times over – this is the secondary part of what I want to talk to you about in today’s piece with this illusion of scaling – outside of the trough and the main thing that really takes advantage of people when they’re trying to scale big or they think they want to scale big is the fact that they think it’s a game of either or.

When you’re rich, life is not about either ors, my friend. You get to do boths when you’re rich.

Your goal here is to be able to continue to spend a ton more money month over month over month to be able to make more money and have a team of people or have the know-how yourself to be able to hold that team of people accountable or just do this simple stuff yourself to improve ROAS at the same time.

You’re actually less probable to experience the trough if you’re aggressively attacking CRO actions, conversion rate optimization, and any other improvement-oriented action that can maintain the rise you’re currently at.

Everybody has a desire to just set it and leave it alone and not touch it afterwards and think that everything’s just going to maintain itself. And that’s just not how things work.

Something is always probable to need improved. Something’s always probable to have to require attention to flow towards it to keep the statistic at the level that it’s currently at.

Very rarely can you truly just set something up, be completely hands-off with it, and not have to do literally anything to try to get the stat to go higher or at least maintain itself.

Training Programs for Advanced Paid Advertising Strategy

So as you go through this process, I want to make it really clear. If you’re struggling with this and you want the accountability, you want the resources, you want the tools, you want all the information that you need – first of all, if you don’t want to spend any money, just go read a ton of my other pieces.

You’ll see for yourself all the different solutions that are available to you to be able to improve your ROAS based on wherever it is right now or even just start the process of paid advertising.

But if you want to kick it up a notch and get the true power of what I can teach you, I withhold a tremendous amount on the site.

I make it valuable enough for you to go out there and use it and get some results with it. But I’m not one of those guys that puts literally every single thing that I know out there for free.

I withhold that stuff for my paid programs, which you can find links for.

The Inner Circle program, My Inner Circle, that’s for rich people trying to get a ton richer. That’s where I do one-on-one. That’s where we do weekly group calls. That’s where we do masterminds here at our facility in good old Miami, Florida.

That in addition to all of that fun stuff, comes with an extensive training library, access to Jeremy AI, and plenty of other resources and tools, little AI softwares that we create to help make the implementation of all of what we teach faster and easier.

We also have a huge SOP library currently with a little over 30 plus SOPs.

If you are not rich trying to get a ton richer and you just want to learn marketing in general or maybe you want to train your staff in a cost-effective way, my Master Internet Marketing program is perfect for that.

It’s a 7-week class. You pay once, you get access to lifetime training of that program existing.

Every year we go back and we update the entire program. It’s a seven-week class. We do it annually.

You join in now if we’re not in the middle of the live class. You get access to the most recent cohort’s recording, which of course the most up-to-date information that exists.

As soon as there’s a substantial amount of things that have changed, we go back and we update literally the entire course, which is typically on an annual basis.

Phenomenal program and you can find a link for that. You can even find a link to preview week one of that 7-week class so you can see for yourself how it is, whether you find it valuable or not, whether you like my teaching style inside of that program, and whether it’s right for you.

What I can teach you isn’t theory. It’s the exact playbook my team has used to build multi-million-dollar businesses. With Master Internet Marketing, you get lifetime access to live cohorts, dozens of SOPs, and an 80+ question certification exam to prove you know your stuff.

At the very least, subscribe to the channel, go check out some of my other pieces here, and go get rich. Talk soon.

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