Diminishing returns curve
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Written by Kata
Updated over a week ago

What is it?

Diminishing returns in Marketing Mix Modelling refer to the phenomenon where an additional euro/dollar invested into a certain media doesn't bring back as much in incremental sales as the previous euro/dollar did. The strength of this effect depends on the media and the broader context (e.g. who is advertising and what is being advertised).

How to read a diminishing return chart?

This is an example of a diminishing retun chart from Sellforte. On the x-axis you can see the weekly investments to a certain media, and on the y-axis you can see the incremental sales that the investment brings. From this chart we can see that incremental sales increase almost in a linear fashion until 2-3kEUR of weekly investments, but the incremental sales for each euro invested after that starts to be smaller and smaller.

Why are media returns diminishing?

Diminishing returns in the real world can result from a number of factors, for example:

  • Investing more in TV ads after a certain point could result the same people seeing the same ad more frequently, instead of new people seeing the ad.

  • If digital ad inventory for a certain audience is already leveraged to the maximum, investing more does not increase the amount of impressions.

  • If after a certain point there's no relevant searches where a search ad could be connected to, additional investments will not drive significant additional sales.

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