What metrics should be used to make acquisition cost projections based on the level of advertising spending?

While MTA is essential for the daily optimization of marketing campaigns , it is not designed to recommend budget allocations in the event of spending variations (budget increase or decrease).
MTA does not take into account diminishing returns , auction dynamics , or simply the reach still available on your campaigns.
This is where the concepts of incrementality , elasticity and MMM take on their full value.
Here are the main KPIs we will discuss and that you can use to define an optimized budget allocation :
Marginal Cost of Acquisition (mCPA)
→ How does my cost per purchase change if I spend a little more? If I spend a little less?
Incremental Cost of Acquisition (iCPA)
→ What is my actual cost per purchase (the one actually caused by advertising)? Supported by a rigorous scientific approach.
Marginal Incremental Cost of Acquisition (MICPA)
→ What will my cost per incremental purchase be if I increase (or decrease) my spending.

Incrementality and elasticity are related but do not measure the same thing.

The common point between incrementality and elasticity

  • Both examine the effect of a change in media budget .
  • Both are used to decide how far to scale a campaign based on a target CPA.
  • In both cases, we seek to identify the point where spending more is no longer profitable .


The key difference

  • Elasticity → continuous, marginal: “If I add 1% of budget, how does the CPA or volume evolve?”
  • Incrementality → binary, causal: “Without the campaign, would I have had these conversions?”
Incrementality as a diagnosis of causality , and elasticity as a reaction law .


1. Understanding Incrementality

The question we ask ourselves: How many conversions are actually caused by the campaign ?
We compare the volume of sales made by two populations A and B (often organized by region).
Population A will receive special treatment, which will not be applied to population B.
Example :
  • Background: We are looking to see if YouTube spending is truly incremental.
  • Test: 50% of France will be targeted by the YouTube campaign ( population A ), and 50% of France will be excluded from the YouTube campaign ( population B )
  • Measurement: We isolate the causal part of sales (≠ organic, ≠ cannibalization).
  • Population A = 1,000 conversions
  • Population B = 800 conversions
  • Increment = 200 conversionsRight Arrow Incrementality = 20% (200/1000).
It is a causal measure, which allows to measure an iCPA (incremental CPA).
iCPA = Average CPA / %_incrementality
We can also express the incrementality in lift vs control group:lift = (sales with treatment − sales without treatment) / sales without treatment = 200/800 = 25%.In this case :iCPA = Average CPA × (1 + lift) / lift = 10 × 1.25 / 0.25 = €50 .(Equivalent to the previous formula, just another way of writing it.)


2. Elasticity

The question we ask ourselves: How does CPA or sales volume react when I change my expenses ?
This is a sensitivity measure. We calculate the elasticity of conversions in relation to spending.
CPA elasticity = % variation of CPA when the budget is varied.
Example 1: Budget +10%, CPA +5% → elasticity = +0.5 (i.e. 5%/10%)
  • An elasticity of 0.5 means that sales increase, but half as fast as expenses . We gain weight less quickly than we spend.
  • Concretely, if we increase expenses by 10% , we only recover +5% of sales .
As long as the incremental value of a conversion is greater than the marginal cost, it is profitable, but we are approaching a zone of diminishing returns.
Example 2: Budget +10%, CPA −5% → elasticity = −0.5
  • Negative elasticity means: when you increase spending, the CPA decreases . Every additional euro makes the campaign more efficient.
  • With an elasticity of −0.5 , spending more improves performance : +10% budget reduces CPA by 5% — we are in a zone of increasing efficiency.
  • In other words, we are entering a zone of increasing returns : the cost per sale becomes more efficient with more budget.
  • We are probably in a phase where:
  • the countryside was not yet saturated,
  • or media algorithms find better opportunities with more volume.
The elasticity of conversions with respect to expenditures allows the marginal CPA to be deduced via a simple relationship.
mCPA = Average CPA / Elasticity
The CPA elasticity mentioned here assumes a roughly linear relationship between expenditures and performance in the available data area .
In practice, the curve may flatten (diminishing returns), change slope (threshold/promotion effects) or react with a delay (seasonality, learning time).
Elasticity is a
simple and useful tool
, but its validity is
local
. For ambitious budget changes, choose a
nonlinear modeling
or controlled tests.


3. Operational recommendations

IF
THEN
Spending variation ≤ 15–20% and stable media environment
Use elasticity on attributed conversions
Variation in expenditure > 20% or multi-channel reallocation
Use elasticity on incremental conversions (holdout/geo-lift test) or Marketing Mix Modeling (MMM)
Strong seasonality/offline or major changes (algo, creative, offer)
MMM (with adstock + and saturation management)


Puzzle Piece In summary

  • Incrementality → “Does it work, and how much more does it create?”
  • Elasticity → “If I put a little more or a little less, how does it move?”
  • Link → ideally , we first measure the incrementality to be sure of the causality, then we calculate the elasticity to optimize the budget level.
  • However → incremental measurement tests are expensive and elasticity is often used independently.