The most expensive habit in DTC advertising is competing for the same tiny slice of ready-to-buy customers as everyone else in your category. Most brands do exactly that, and most brands watch their CPA slowly creep up as a result.
Most paid social strategies are built around demand capture. Go find the person who is already looking. Already knows what they need. Already primed to tap "add to cart." The logic feels solid. Why spend money on people who aren't in market?
The answer is in the math.
Who actually makes up your market
Eugene Schwartz mapped this in the 1960s. His five stages of buyer awareness describe a spectrum from Unaware (doesn't know they have the problem your product solves) through Problem Aware, Solution Aware, Product Aware, and Most Aware (knows you exist, just needs a reason to buy now). Most of your market sits in the first two stages. Most ad budgets chase the last two.
The numbers Schwartz attached to those stages: roughly 3% of any market is actively in buying mode. About 17% are Problem Aware. Around 20% are Solution Aware. And 60% are entirely Unaware. That 3/17/20/60 split is what practitioners now call the Larger Market Formula.
The Ehrenberg-Bass Institute arrived at a similar conclusion through a different route. Professor John Dawes's 95:5 rule holds that only around 5% of potential customers are actively shopping your category at any given moment. Sixty years of that research consistently show that brand growth comes from reaching new and light buyers, not from squeezing more frequency out of existing intent audiences.
The Larger Market Formula isn't a model you use once and shelve. It's a map of where CPM pressure actually lives on Meta.
Why fighting for the 3% gets expensive
Every DTC brand targeting purchase-intent signals on Meta is fishing in the same pond. Add-to-cart abandoners, lookalikes of recent purchasers, website retargeting, engagement audiences from people who watched 75% of a product video. When seven brands run conversion campaigns against the same slice of in-market buyers, CPMs go up. Reach per pound goes down. The audience saturates in weeks. And CAC climbs.
Here's what the trajectory actually looks like. Brand launches. They build retargeting audiences, run conversion campaigns, chase the high-intent signals Meta surfaces. Early on it works. CPA looks manageable. Then it starts creeping.
What's happening: they've run through their natural in-market pool. The 3% who were going to buy anyway have bought. The algorithm now has to work harder to find the next batch, paying more CPM for increasingly marginal intent signals, reaching people who aren't really that close to buying. Costs keep climbing. The creative team churns out more ads. The audience is the same faces seeing the same brand for the tenth time this month.
This is the demand saturation trap. You're not failing at advertising. You're succeeding at it. The pool was just always going to be small.
The brands that win on paid social aren't fighting harder for the 3%. They've stopped treating the other 97% as wasted spend.
What actually happens when you talk to the 80%
Prose, the personalised hair care brand, ran a 30-day Meta lift test with creative studio TubeScience. Their account had been optimised around a one-day click attribution window, which is effectively a bottom-of-funnel setup: capturing demand that already exists rather than generating new demand. They introduced upper-funnel creative written for Problem Aware and Solution Aware audiences. People who knew they had a hair problem but hadn't yet landed on Prose as the answer.
The full-funnel approach outperformed the bottom-of-funnel-only setup by 61%. Prose scaled spend by 29% over the period and CAC still improved. The turning point was around day 15, when the first cohort of viewers exposed to the awareness creative had moved through the funnel to conversion. Awareness didn't pay off on day one. It paid off two weeks in, as a new pool of warmer buyers arrived that the conversion campaigns hadn't created.
This is the mechanism the Larger Market Formula describes. You're not advertising to people who will never buy. You're building the group who will buy next quarter, so your conversion campaigns have a larger, warmer pool to work with. Upper-funnel volume now is bottom-of-funnel efficiency later.
What we've seen in client work
We tracked a DTC supplement brand across two consecutive 90-day periods. In the first period, around 85% of their Meta budget was running against retargeting and lookalike audiences built from purchasers. Effectively targeting the in-market 3-17%. CPA sat at £42. Frequency on their core retargeting audiences was above 8, which means most people in those audiences were seeing ads almost daily.
In the second 90 days, we shifted roughly 60% of budget toward cold audiences with awareness and problem-aware creative. Long-form UGC that named the problem, told a real story, and didn't reach for the sale until the final five seconds. The retargeting campaigns stayed live but received less budget and were refreshed with new creative.
By week ten, CPA was £31. That's a 26% improvement. More useful than the CPA number: the retargeting audiences started performing better because they had new, warmer people in them. The supplement's retargeting pool had been recycling the same faces for months. Feeding it with upper-funnel volume brought fresh potential buyers into the bottom of the funnel.
This isn't an argument that awareness campaigns always win in 30 days. They rarely do. It's that a budget allocation which ignores the 80% will eventually starve your bottom-of-funnel of new entrants and push CPA up regardless of how good your conversion creative is.
What upper-funnel creative actually looks like
Most brands accept the theory, then run a product ad at cold audiences and wonder why it doesn't convert. "Buy our supplement, it's great" doesn't land when someone doesn't yet know they have the problem your supplement solves.
Unaware audiences need to feel the problem before they care about the solution. You can't open with the product. You open with a moment, a tension, a question that makes the viewer think "that's me" before they know what's being advertised. The format that keeps working: problem in the hook, genuine story in the body, product as the natural resolution.
Problem Aware creative can name the problem directly. The viewer already knows they have it. Your job is to build enough resonance with that problem that when the product appears, the connection feels obvious rather than sold.
Solution Aware creative can introduce your brand as a category option. "You've probably looked at protein supplements before. Here's why we do it differently." You're positioning, not converting. The sale comes later, in retargeting, when the viewer has already heard the story.
Format matters more at the top of funnel than most brands realise. Long-form UGC at 60 to 90 seconds with a real arc does better work at the Unaware and Problem Aware stages than a 15-second cut-down. The viewer needs enough time to feel the problem before they care about the resolution. Short creative is better suited to retargeting, where you're reminding someone who already wants the thing. On the relationship between awareness stages and UGC format, format is not interchangeable across the funnel.
A budget split to start from
This table is a starting ratio, not a rule. Your actual split depends on category maturity, existing brand awareness, and how saturated your retargeting audiences already are.
| Awareness stage | % of market (Schwartz) | Suggested budget share | Creative format that works |
|---|---|---|---|
| Unaware (60%) | 60% | 30-40% | Long-form UGC, story-led, problem in hook |
| Problem Aware (17%) | 17% | 20-25% | Problem/solution UGC, testimonials, before-after |
| Solution Aware (20%) | 20% | 15-20% | Comparison, differentiation, social proof |
| Product + Most Aware (3-17%) | 3-17% | 15-25% | Offer-led retargeting, short-form, direct CTA |
If you're a new brand, more budget belongs at the top because you're building awareness from scratch. If you're established and your retargeting frequency is running above 6, the upper-funnel allocation is overdue. The frequency number is often the clearest signal: once the same audiences see your ads daily, you've saturated existing demand and need to build new demand.
Key takeaway
The Larger Market Formula describes the market you already have, not the one you're paying to reach. Most DTC ad budgets are pointed at the 3% who were going to find you anyway. The growth is in the 60% who don't know they need what you sell yet.
The compounding argument
The reason to care about this isn't just CPA in the next 30 days. It's what compounds over time when you treat the 80% as an ongoing investment.
Brands that consistently reach Unaware and Problem Aware audiences are building what Ehrenberg-Bass calls mental availability: the likelihood that your brand comes to mind when someone's need eventually activates. This is how category-dominant brands stay dominant. They don't wait for the customer to show up already researching. They make sure the customer already knows them when the moment arrives.
For DTC brands on Meta, this shows up in a few concrete ways. Retargeting CPMs stay lower because your lookalike audiences are broader and fresher. Advantage+ campaigns perform better because the algorithm has richer signals to work with. And the baseline of recognition reduces how much convincing your conversion creative has to do. A viewer who has seen your brand twice already doesn't need to be sold from scratch.
There's a version of this that brands get wrong in the other direction too. Throwing 80% of budget at cold awareness creative without building the retargeting infrastructure to capture the intent it generates wastes the investment. The funnel has to work end to end. Cold creative builds the pool. Conversion creative harvests it. You need both running at the same time.
The brands scaling on paid social in 2026 aren't just optimising their conversion campaigns harder than everyone else. They've accepted that most of their market isn't ready to buy yet, and they're building a relationship with those people before the need activates. That population of warm, familiar potential buyers is what CPA ultimately depends on.
If your CAC is creeping and your retargeting frequency is high, the problem almost certainly isn't the creative. It's the pool. Build the pool, and the creative has somewhere to work.
For a deeper look at how creative systems compound over time, or if you want to understand how to iterate winners once the upper-funnel starts producing them, those are the right next reads.
Frequently asked questions
What is the larger market formula in advertising?
The larger market formula describes how your total addressable market splits across five stages of buyer awareness: roughly 3% are actively in buying mode, 17% are problem-aware, 20% know solutions exist, and 60% are entirely unaware. Most ad budgets chase the 3%. The formula argues that the real growth opportunity sits in the other 97%.
Why are CPMs higher when targeting in-market audiences on Meta?
In-market signals attract every brand in your category at once. When multiple advertisers target the same purchase-intent signals -- website visitors, add-to-cart abandoners, lookalike buyers -- auction pressure pushes CPM up. You're all bidding on the same slice of ready-to-buy users, and the auction reflects that competition directly in your costs.
What kind of creative works for unaware audiences on Meta?
Content that leads with a relatable problem or tension before introducing the product. Long-form UGC (60 to 90 seconds) with a genuine story arc tends to outperform short cut-downs at the top of funnel. The product is the resolution of the story, not the opening. Unaware audiences need to recognise the problem as their own before they care what solves it.
How should I split my Meta budget between funnel stages?
A useful starting split for a DTC brand with some existing brand awareness: 50 to 60% to cold audiences (unaware and problem-aware creative), 20 to 25% to solution and product-aware, 15 to 20% to retargeting. Adjust based on how saturated your retargeting audiences are and how established your brand already is in the category.
Does upper-funnel Meta advertising actually improve CPA?
Over a long enough window, yes. Prose's full-funnel lift test via TubeScience showed a 61% improvement over a bottom-of-funnel-only setup, with CAC improving despite a 29% spend increase. The mechanism: upper-funnel creative replenishes your retargeting pool with warmer audiences who have already heard of you, so your conversion campaigns are working with better raw material.