Why ROAS Is No Longer Enough: The Importance of Measuring Marketing Efficiency Ratio (MER)
In digital marketing, measuring campaign success has always been a top priority for businesses. Return on ad spend (ROAS) has been a popular metric for marketers to track, as it shows the amount of revenue generated for every dollar spent on advertising. However, since Apple and Google’s data privacy changes limited cookie-based and device-level tracking, relying solely on ROAS as the key metric for campaign success is no longer enough.
The challenge lies in the fact that these data privacy changes have made it increasingly difficult for marketers to track and understand a customer’s shopping journey. As a result, businesses need to find new ways to measure campaign success that take into consideration the complex e-commerce customer journey.
ROAS is a granular snapshot of your campaign’s success. It’s last-click attribution focused, which means it only shows the revenue generated by the last click that led to a sale. This narrow view doesn’t account for the multiple touchpoints a customer may have had before making a purchase, such as social media ads, email marketing, and website visits.
That’s where measuring your Marketing Efficiency Ratio (MER) comes into play. MER is calculated by dividing the total revenue generated by your advertising campaign by the total cost of advertising. Unlike ROAS, which only looks at the last click, MER takes into account the entire customer journey, from initial awareness to final purchase.
By assessing MER as well as ROAS, you get a more comprehensive overview of your marketing campaign’s effectiveness and profitability. It helps you to see the “bigger picture” of your business and allows you to make smarter decisions for a better return on investment (ROI).
For example, let’s say you have two campaigns that both generate $10,000 in revenue. The first campaign costs $2,000 in advertising, while the second campaign costs $4,000. At first glance, both campaigns appear equally successful based on ROAS (5:1). However, when you calculate the MER, you’ll find that the first campaign has an MER of 5:1, while the second campaign only has an MER of 2.5:1. This means the first campaign is twice as efficient as the second, and thus more profitable.
While ROAS is still a valuable metric for measuring campaign success, it can no longer be the only metric you rely on. By adding MER to your measurement toolkit, you’ll get a more comprehensive view of your campaign’s effectiveness and profitability, and make smarter decisions that drive better ROI.
