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Return-on-ad-spend – or ROAS – has solidified itself as an industry standard for measuring campaign effectiveness. There’s no doubt that ROAS is useful, but an ultra-heavy focus on the metric can be deceptive when determining the overall health of your campaigns. Is the Marketing Efficiency Ratio, or MER, the solution to the problems ROAS creates? Let’s dive into the details:
MER vs. ROAS: What’s the Difference?
ROAS is calculated by dividing the cost of ads from the revenue those ads produced: (Revenue from ads) / (Cost of ads). It came into prominence in the late 1990s as digital advertising was born as we know it today. ROAS served as the first real “trackable” KPI to demonstrate campaign effectiveness.
MER is determined by dividing total marketing spend against the total revenue of the business: (Total revenue) / (total marketing spend). While it’s been around for a while, MER has been re-emerging as a popular metric in the 2020s in response to an ever-more complicated digital advertising space.
That’s because ROAS was designed to track performance of an individual channel or campaigns within a channel, what we might call micro performance. MER, on the other hand, is built to take multiple channels into account, offering a macro view on effectiveness.
Both MER and ROAS have their uses; the problems begin when advertisers continue to use ROAS beyond the metric’s scope. Many treat ROAS as the end-all be-all for marketing efficiency, when it wasn’t designed to oversee all the complexities of modern digital marketing.
How ROAS Doesn’t Tell the Whole Story…
The customer journey is longer now, and advertisers chasing ROAS have the unenviable job of deciding how to credit each of the touch-points through the funnel. It’s a complicated task that many just give up on, resorting to last-click attribution that doesn’t give credit to ads seen earlier on. This method can tell a dangerous tale of branding/top funnel messages being much less effective than retargeting/bottom-funnel.
Picture this: a marketing manager notices that ROAS slips from 4:1 to 3:1. This might be part of the normal ebb and flow of marketing, but the manager wants to keep the numbers up to maintain the status quo: they cut spending for the month to balance the ratio back to 4:1.
ROAS may have “gone up”, but are things actually better? Reduced spend (or redirecting lots of spend toward bottom-funnel) means the whole funnel suffers, leading to a potentially worse-off brand. In other words, ROAS can be easily improved in the short-term, but doesn’t equate to long-term health.
ROAS can be very helpful when tracking optimization within a channel; comparing the ROAS of two campaigns can help advertisers know which approach works best for a specific medium. But once ROAS becomes the guiding star for an entire marketing strategy, it can easily become little more than a vanity metric.
…And How MER Does!
Rather than look at the money going into and out of a campaign, MER measures total revenue against total ad spend for the entire business. There are a number of advantages to using this system:
A True Measure of Scaling Efficiency. ROAS and conversions will naturally rise and fall as campaigns progress, but if MER dips, then you know something has actually gone wrong. If total spend increases but revenue increases faster, MER improves and signals healthy scaling.
Model-Agnostic. MER doesn’t care whether last-click or data-driven attribution shifts credit. It tracks the top line vs. total spend.
Captures the Halo Effect. There are many paths that lead to conversion, including indirect means like word-of-mouth. MER accounts for these by including total revenue in its calculation.
MER has the added benefit of being “boardroom ready” by speaking the language of financial leaders. Using MER keeps conversations aligned with revenue, budgets, and business outcomes.
Using MER Wisely
Every metric has its strengths and weaknesses, and any metric can go the way of ROAS if not handled properly. Here are a few ideas on how to incorporate MER into a healthy strategy:
- Set Guardrails. Agree on a floor (ex. “don’t scale unless MER > X”) that respects margin structure and payback windows.
- Tie Tests with MER Movement. Creative and supply experiments shouldn’t be done for the sake of it; create goals and hypotheses around how MER will shift in addition to ROAS.
- Use Dips in MER to Diagnose Issues. MER dropping is when the investigation begins. By using a path-aware platform like Genius Monkey, advertisers can look through reports to find root causes rather than treating symptoms.
Programmatic Metrics are Evolving
Following the data is essential to long-term success in programmatic advertising, and following the right kind of data is just as important. ROAS has a rich heritage, but the complexities of modern marketing means advertisers need more robust metrics and ways of tracking consumer behavior.
Genius Monkey allows advertisers to visualize all key metrics including ROAS, MER, customer acquisition cost (CAC), and many others. Our team of experts will work with you to find the best solutions for long-term stability and growth, and we’ll have the data to show that it works.
It’s time to evolve your marketing strategy with a Meta-DSP powered by proven results! If you’re ready to start increasing your conversions and understanding the full customer journey, get in touch with Genius Monkey today.
