You're Only Advertising to 3% of Your Market: The Larger Market Formula

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. On the split below, Unaware and Problem Aware together make up 80% of the market: the 80% this post is about.

Schwartz's stages themselves are qualitative; he never attached percentages to them. The 3/17/20/60 split comes from a related, more recent framework: Sabri Suby's Larger Market Formula (Sell Like Crazy), which splits any market into roughly 3% ready to buy now, 17% gathering information, 20% who recognise they have a problem but aren't researching solutions yet, and 60% who don't realise they have the problem at all. We map that split onto Schwartz's five stages for paid social: the top 3% as Product and Most Aware combined, the 17% gathering information as Solution Aware, the 20% who feel the problem but aren't looking as Problem Aware, and the 60% as Unaware.

Most write-ups of this formula treat it as an email and content-nurture play for high-ticket sales. That's fine as far as it goes, but it misses what the split does inside a Meta ad account. There, the 3% is small and crowded: it's the same audience every competitor's pixel is optimising toward.

The Ehrenberg-Bass Institute arrived at a similar conclusion through a different route. Professor John Dawes's 95:5 rule (originally framed for B2B categories, but the underlying buyer-behaviour pattern generalises) holds that only around 5% of potential customers are actively shopping your category at any given moment. Decades of Ehrenberg-Bass research consistently show that brand growth comes from reaching new and light buyers, not from squeezing more frequency out of existing intent audiences.

Don't treat the exact percentages as measured fact for your category. They're a planning heuristic, and Dawes's 5% and Suby's 3% disagree on the detail while agreeing on the shape. What matters is the shape: a thin layer of people buying now sitting on a much larger base who will buy later. That shape is 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.

The trajectory is familiar. A brand launches, builds retargeting audiences, runs conversion campaigns and chases the high-intent signals Meta surfaces. Early on it works. Then CPA starts creeping, because the 3% who were going to buy anyway have bought. The algorithm has to pay more for increasingly marginal intent signals, and the same faces see the 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.

Run the pool math on your own account

Here's the arithmetic most brands never do. Take an illustrative skincare brand whose realistic market on Meta is 2,000,000 people. Every number below is an assumption to swap for your own; the point is the ratio, not the inputs.

Thirty-three impressions a month means every person in the hot pool sees you more than once a day. Nobody needs that many reminders. Past a handful of exposures, each extra impression is mostly paying to show an ad to someone who has already decided yes or no. Meanwhile 1,940,000 people outside that pool, many of whom will shop the category at some point, haven't heard of you, and when they do start shopping, a competitor got there first.

You don't need to run the right-hand column literally. Nobody should spread budget evenly across two million strangers. But the left-hand column is what a retargeting-heavy account is quietly doing, and the frequency number gives it away.

Signs you've fished out the 3%

Two or more of these together, and the next creative refresh won't fix CPA. A bigger pool will.

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 aimed at people who hadn't yet landed on Prose as the answer, what this model would frame as Problem Aware and Solution Aware audiences.

The full-funnel approach outperformed the bottom-of-funnel-only setup by 61%. Prose shifted 48% of spend to awareness or consideration, grew Meta spend by 29%, and CAC still improved by 7%. The day-by-day readout is the useful part, because it shows exactly when most brands would have pulled the plug:

For two weeks the data said the old setup was winning. A team reviewing weekly would have killed the awareness creative at day 7 or day 14 and never seen the flip. Awareness didn't pay off on day one. It paid off once the first cohort of viewers had moved through to conversion.

This is the mechanism the Larger Market Formula describes. 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.

It also tells you how to measure it. Judge awareness creative on the same one-day click window as retargeting and it will always lose. Meta's Ads Manager now offers an incremental attribution setting, which optimises and reports on conversions its models predict the ad actually caused, and a proper lift test is better still. Give any upper-funnel test at least three to four weeks before you call it. Awareness won't always win inside 30 days, but a budget that ignores the 80% will eventually starve your bottom of funnel of new entrants, however good the 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. In our experience, 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.

If you're a new brand, more budget belongs at the top because you're building awareness from scratch. As a rule of thumb, if you're established and your retargeting frequency is running high (above 5 to 6), the upper-funnel allocation is probably 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.

The compounding argument

The reason to care isn't just CPA in the next 30 days. Brands that keep reaching Unaware and Problem Aware audiences build what Ehrenberg-Bass calls mental availability: the likelihood that your brand comes to mind when someone's need eventually activates. Category leaders don't wait for the customer to show up already researching. They make sure the customer already knows them when the moment arrives.

On Meta that shows up as fresher, broader audiences for Advantage+ campaigns to work with, and conversion creative that has less convincing to do. A viewer who has seen your brand twice doesn't need selling from scratch.

Brands get this wrong in the other direction too. Throwing 80% of budget at cold creative without the retargeting to capture the intent it generates wastes the investment. Cold creative builds the pool. Conversion creative harvests it. You need both running at once.

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 what comes next, read how creative systems compound over time and how to iterate winners once the upper funnel starts producing them.

Frequently asked questions

What is the larger market formula in advertising?

The larger market formula is Sabri Suby's framework for how a market splits by buying readiness: roughly 3% ready to buy now, 17% gathering information, 20% who recognise they have a problem but aren't researching solutions yet, and 60% who don't realise they have the problem. Most ad budgets chase the 3%. The formula argues that the growth sits in the other 97%, and on Meta that means building creative for people who aren't shopping yet.

What percentage of a market is ready to buy at any one time?

A small minority. Suby's larger market formula puts it at about 3%, and Professor John Dawes of the Ehrenberg-Bass Institute puts it at around 5% for B2B categories (the 95:5 rule). Treat both as planning heuristics rather than measured facts for your category. The useful point is that most of the people you can reach will buy later, not this week.

Why are CPMs higher when targeting in-market audiences on Meta?

In-market signals attract every brand in your category at once. When several advertisers target the same website visitors, add-to-cart abandoners and lookalike buyers, auction pressure pushes CPM up. You are all bidding on the same small slice of ready-to-buy users, and once that slice is saturated each extra impression mostly reaches people who have already decided.

How should I split my Meta budget between funnel stages?

A useful starting split for a DTC brand with some existing awareness: 30 to 40% to unaware creative, 20 to 25% to problem-aware, 15 to 20% to solution-aware, and 15 to 25% to product-aware and most-aware, including retargeting. Move more to the top if your retargeting frequency is running above 5 to 6 over 30 days, and more to the bottom if your warm audiences are small and fresh.

Does upper-funnel Meta advertising actually improve CPA?

Over a long enough window, yes. In Prose's 30-day Meta lift test with TubeScience, the full-funnel setup beat bottom-of-funnel only by 61%, and CAC improved by 7% while Meta spend rose 29%. But the bottom-of-funnel setup led for the first 15 days, so a test judged after one or two weeks would have reached the wrong answer.

Researched and drafted with AI assistance, then edited and fact-checked by Chris Bristow.