My Rant About Diminishing Returns

The topic of diminishing returns is following me around everywhere I go recently.  And one key component about is starting to get on my nerves.  Suffice to say, that this post might take a different form and tone, in a video, but this’ll have to do.  And while the focus below is about managing media, the point is applicable to many other situations.

In multiple meetings this week, I’ve heard people talk about what media is more efficient than others for a given business, what the optimal level of spend is, and how best to manage media.  The dialogue has gone something like this:

Person #1:  Well, this media is working, but as we scale it, we’re going to see diminishing returns.

Person #2 (Not bothering to ask what media “working” means nor how significant the diminishing returns are):  Ok.  Well, then stop spending there.

That’s it.  Literally, I’ve heard that 3 times in the past week.  Here’s my problem with this conversation, beyond the sheer blanket acceptance the 2^nd person made of the other’s comment:

WHAT’S THE GOAL?!!!

In the below example, assume for a moment that at increasing levels of media spend, that the cost per order to acquire customers also increases (with a few exceptions, this is almost always the case).  And so yes, it is true that the media has diminishing returns as you scale it.

BUT HERE’S THE THING, the target cost per order is higher than the actuals at all 3 media levels.  Which means that unless all the media that ran as this marketer increased from $60K to $100 came in well above breakeven, then despite the fact that the increased media had diminishing returns, you still would want to run it if you were this marketer.

(For the moment, let’s not get caught up in inventory or cash flow issues – which I don’t mean to minimize, but that’s not where these discussions have been and what’s bothered me so much.)

So please, to tweak a great quote I heard about relationships (“Do you want to be right or do you want to be happy?”):

“Do you want to be right or do you want to make more money?”

This is why context is so key. And why challenging what people say is so key.

There, I feel better now.

Please leave a comment below because I’d like to hear what you think. 

You can also follow me on social media or connect with me directly by clicking the links to the left.