When it comes to measuring the success of marketing campaigns, there are two metrics that are often used interchangeably: ROAS and MER. While they may seem similar, there are important differences between the two. Let’s dive into what ROAS and MER are, how they differ, and when to use each metric.
What is ROAS?
ROAS stands for Return on Ad Spend. It is a metric that measures the revenue generated for every dollar spent on advertising. The formula for ROAS is:
ROAS = Revenue from Advertising / Cost of Advertising
For example, if a company spent $1,000 on advertising and generated $5,000 in revenue, the ROAS would be 5:
ROAS = 5,000 / 1,000 = 5
ROAS measures the performance of specific advertising campaigns. By calculating ROAS, companies can identify which campaigns are performing well and which ones may need to be adjusted or scrapped.
What is MER?
MER stands for Marketing Expense Ratio. It is a metric that measures the total marketing expenses relative to revenue. The formula for MER is:
MER = (Total Revenue / Total Marketing Expenses)
For example, if a company generated $100,000 in revenue and spent $10,000 on marketing, the MER would be 10:
MER = 100,000 / 10,000 = 10
MER determines the overall effectiveness of a company’s marketing strategy. By calculating MER, you can identify areas where you may be overspending on marketing or where you can make adjustments to improve your overall return on investment.
How are MER and ROAS different?
Although MER and ROAS are similar, there are some key differences between the two metrics. MER measures the total marketing expenses relative to revenue, while ROAS measures the revenue generated for every dollar spent on advertising. In other words, MER is a measure of the overall success of a company’s marketing strategy, while ROAS is a measure of the success of specific advertising campaigns.
When to use ROAS
ROAS is useful when you want to assess the effectiveness of a specific marketing campaign or channel, such as Facebook or Google ads. This metric can help you make informed decisions about which campaigns or channels are generating the highest return on investment. For example, if a Google campaign has a ROAS of 3:1 and a Facebook campaign has a ROAS of 2:1, you may want to allocate more of your budget towards the Google ads campaign.
Why business owners should look at MER instead of ROAS
While ROAS helps you determine the performance of specific ad campaigns, it has its limitations. ROAS only measures the return on investment of advertising spend and does not take into account any other marketing expenses. It also only shows immediate results from a particular campaign. This means that ROAS may not provide a complete picture of the overall effectiveness of a company’s marketing strategy.
As a result, optimizing ads solely based on ROAS is “like riding a rollercoaster with blinders on,” according to Megaphone. “You’re quick to panic when it dips…from 4 to 3, and frantically try to ‘fix’ it – turning things off, reducing ad spend, assuming the strategies aren’t working.” Because ROAS fails to incorporate the big picture of your advertising, making it your most important metric may cause you to make rash decisions when adjusting your ads.
On the other hand, MER (also known as blended ROAS) provides a more comprehensive measure of a brand’s marketing success. It takes into account all marketing channels, including advertising spend, and provides an in-depth measure of how much a company is spending on marketing relative to revenue generated. This makes it a more reliable metric for determining the overall performance of a company’s marketing strategy over time, rather than just the immediate results pulled by ROAS.
A great example of long-term marketing benefits is SEO content, which can generate revenue for your business long after it’s published. For instance, the creation of a blog may require a one-time investment, but it can continue to attract and guide consumers through the marketing funnel for years to come, resulting in long-lasting advantages for your business.
Benefits of using MER
There are several benefits to using MER as a metric for measuring the effectiveness of your company’s marketing strategy:
1. Provides a complete picture of marketing effectiveness – MER is perfect for multichannel marketing as it takes into account all of your marketing efforts, providing a more comprehensive measure of the effectiveness of your ads.
2. Helps identify areas of overspending – Calculating MER can help you to pinpoint areas where you may be overspending on marketing and adjust accordingly to improve your ROI.
3. Allows for comparison between companies – MER can be used to compare the effectiveness of marketing strategies over time or between different companies in the same industry.
4. Encourages long-term thinking – Since MER measures the overall effectiveness of a company’s marketing strategy, it encourages long-term thinking about marketing investments rather than focusing solely on short-term returns.
5. Accountability – Using MER provides accountability to marketing teams. It creates an environment where teams can set specific goals to improve the MER and measure the success of their efforts. MER helps to create a culture of data-driven marketing that values the overall performance of all marketing channels.
6. Accurate figures – Because Facebook and Google have different attribution methods, both channels might take credit for a single sale. Therefore, ROAS can sometimes be estimated. MER, however, provides accurate numbers without the possibility of overlap.
While ROAS is a useful metric for measuring how a specific advertising campaign performs, it does not factor in all of the revenue that a marketing campaign may bring in. You should also be looking at MER to measure success as it will help you to gain a broader perspective of the cumulative impact of your marketing efforts as they unfold over time. MER is one of the best metrics to look at because it provides a clear picture of the average return on ad spend across all channels, allowing you to assess the overall value of your marketing.
While ROAS and MER may seem confusing at first, we use them every day to help clients measure the success of their brands’ marketing campaigns and overall strategies.
For example, we reached an MER of 8X for a jewelry brand, hitting $101,083 in online sales with an increase in revenue by 50%.
We helped another client, an organic skincare company, achieve an MER of 17.74X and become a $3MM brand by the end of 2022.
If you’re hoping to achieve similar results for your brand, book a free strategy call with us to see how we can help you boost your MER!