Ever been at a marketing conference and felt completely out of the loop when the discussion turned to metrics? Many have felt uncertain hearing about “MER vs ROAS.” It’s like trying to decide between buying or leasing a car, or even choosing between a steamer and an iron for your clothes.
We’re going to clarify the differences between MER and ROAS. These tools show you different views of marketing success and offer a clear strategy that goes beyond the usual discussion.
Table of Contents:
- Understanding MER (Marketing Efficiency Ratio)
- Understanding ROAS (Return on Ad Spend)
- Direct Comparison: MER vs ROAS
- Making Better Decisions: Data and Strategies
- Frequently Asked Questions (FAQs) about MER vs ROAS
- Conclusion
Understanding MER (Marketing Efficiency Ratio)
MER, or Marketing Efficiency Ratio, gives you a big-picture view of your marketing efforts. It shows how your total revenue compares to your total marketing spend. MER helps businesses understand the broader context in campaign analysis.
Think of MER like looking at your entire garden’s health. It shows the total output and the health of that entire ecosystem.
Calculating MER: A Simple Formula
Calculating MER is quite easy. This measurement needs just two main ingredients. Here they are:
Step 1. Gather your Total Revenue numbers.
Step 2. Add up your Total Marketing Spend, and use this basic formula:
MER = Total Revenue / Total Marketing Spend
For instance, if you earned $500,000 and spent $100,000 on marketing, your MER is 5. This means for every dollar you spent, you got back $5. This method offers insight, but it’s also important to not overlook ROAS.
Benefits of Monitoring MER
MER gives a complete view of total ad spend, which helps companies a great deal. Keeping an eye on MER allows brands to see the overall impact on a larger scale. You see the effectiveness across a broad range of data.
MER is a way of testing any system-wide marketing strategies. If a change positively or negatively affects a metric across every marketing channel and audience segment, this data reveals that in the big picture. MER helps evaluate the overall marketing budget.
High MER suggests efficient marketing investments. MER assesses overall marketing campaign performance, giving a comprehensive view.
Understanding ROAS (Return on Ad Spend)
ROAS, or Return on Ad Spend, measures the money you get back from what you spend on a specific advertising campaign. Think of it like figuring out if planting a single type of seed was worth the cost and upkeep.
If your ad dollar returns more than you spend, it might be doing great. But if it’s only bringing back fifty cents per dollar, it’s falling short.
Calculating ROAS
Calculating ROAS is very targeted.
You have an equation to measure marketing results that’s isolated down to the segments or campaigns that you want. Here’s how to calculate it:
Step 1. Determine Total revenue from the Ad Spend.
Step 2. Calculate the Total Spend of those specific efforts:
ROAS = Revenue from Ad Campaign / Cost of Ad Campaign
A ROAS of 4 means for every dollar spent, you made four. It helps focus marketing strategies where they matter most. This shows how revenue generated links to a specific campaign.
Benefits of Tracking ROAS
Tracking Return on Ad Spend (ROAS) gives marketers better granularity of ad campaigns performance. There are major benefits that come with measuring it. These give companies a significant advantage.
- Focusing on which campaign is performing well enables better scaling of your ad spend.
- A higher rate of return helps in allocating more resources toward top channels and platforms.
Where MER covers the broad data view, ROAS is all about the marketing spend of selected, isolated segments of ads and customer groups. ROAS focuses on the financial return of specific efforts, which helps improve the performance of future campaigns.
Direct Comparison: MER vs ROAS
While seemingly similar, MER (Marketing Efficiency Ratio) and ROAS (Return On Ad Spend) serve distinct roles in evaluating your digital marketing strategies. MER acts as a broad indicator.
ROAS, on the other hand, focuses on individual campaign efficiency. Even with all the advancements available in advertising platforms, data can still have issues. The table below provides an easy view of this.
| Metric | Focus | Use Case |
|---|---|---|
| MER | Overall Marketing Efficiency | Evaluating total marketing spend against total revenue. |
| ROAS | Specific Campaign Efficiency | Measuring the return on investment for individual ad campaigns. |
| Both | Comprehensive Analysis | Combining insights from both metrics for data-driven decisions. |
Attribution Problems With ROAS
The primary worry with ROAS is around attribution accuracy. With growing privacy laws and fewer tracking capabilities, attributing an ad to all that data can be complex.
Platforms often take too much credit for sales. As these things evolve, data challenges for ROAS increase significantly.
It can be tough to assign a direct cost of results, with some campaigns performing a role in assisting other campaigns, and how to determine that cost split for a certain timeframe, which shows why ROAS can be limited without MER as a partner in data insights.
How MER Complements ROAS
MER steps in by offering a top-down picture. The data can add more detail to the numbers and context that comes up missing from just Return on Ad Spend data.
By looking at total revenues against total expenditures, MER catches all aspects. When customers go through many touchpoints on their journey, you see that value in MER metrics.
You don’t risk undervaluing crucial steps by looking too closely, because of the wider view of data analysis you get. Tracking “MER vs ROAS” provides context to see all parts of your digital ads investment. MER offers a holistic view, complementing ROAS’s focus on short-term performance.
Making Better Decisions: Data and Strategies
To move beyond just hoping, and to get towards clear business choices, consider combining both data points. Understanding marketing performance using both metrics is important. Having additional information provides deeper context for evaluation.
In reality, one should measure both Return on Ad Spend and Marketing Efficiency Ratio regularly, separately. You should measure how each plays its part in your customer’s purchasing behavior, no matter where that user is in their comparison shopping phases.
Here are steps on how you might choose your strategy:
Step 1: Align Your KPIs to Business Goals
Begin by mapping your KPIs (Key Performance Indicators) so they meet specific business objectives. This keeps marketing in sync with goals.
Step 2: Leverage Historical Data for Future Predictions
Use past data as a prediction of potential futures. By evaluating prior campaign metrics, businesses make changes that improve performance. Past marketing campaign results set expectations for future campaigns.
Step 3: Make Changes That Improve Scale
The constant measurement of ROAS can drive the focus towards improving specific parts of marketing. Measuring ads give you insights into things you may not consider when looking at top-level MER numbers.
Use these insights to inform marketing budget decisions. By focusing on things in this data-driven way, companies can more efficiently utilize their marketing investments.
Real World Uses
Here’s an analogy using characters from film.
Sometimes a person in marketing must make complex decisions. If the marketing journey has various crossroads, is it better to focus on the big picture or the granular details? Think of insights in life, and whether guidance comes at a big-level or from the granular parts, much like the journey reflected in a film like, “Kramer vs Kramer.”
A business must go through a similar decision. Using both measurements provides deeper guidance than using them separately.
Frequently Asked Questions (FAQs) about MER vs ROAS
What is the difference between MER and ROAS?
MER (Marketing Efficiency Ratio) measures the overall efficiency of your marketing spend by comparing total revenue to total marketing spend. ROAS (Return on Ad Spend) measures the effectiveness of specific advertising campaigns by comparing revenue generated from those campaigns to their cost.
MER gives a broader perspective, while ROAS offers granularity.
Why should I track both MER and ROAS?
Tracking both MER and ROAS allows businesses to gain a holistic view of their marketing efforts. MER helps businesses understand their overall marketing performance, providing context.
ROAS offers a granular view. Focusing on individual campaign data gives deeper views of parts of marketing spend.
How can MER and ROAS improve marketing strategies?
By monitoring MER, businesses can see the big picture and evaluate overall strategies. MER suggests areas for resource allocation and general strategy changes. By using both, teams can use data to improve scale of both large and granular aspects of their work.
By tracking ROAS, marketers can focus on the advertising channels and campaigns that deliver the best return. Both numbers in tandem inform a single marketing approach. Tracking these numbers also informs companies when it’s time to pivot from an advertising approach that is not producing.
This allows companies to act in data-driven approaches that enhance their efficiency, helping increase sales generated with optimized investment, as well as revenue growth. This constant measurement allows refinement and improvement of data-driven insights in an efficient and ongoing way, leading to more potential long-term success.
Conclusion
Marketing teams are constantly trying to balance many tasks. Knowing which tools matter will add tremendous insights into campaign performance, and give executive overviews.
As you examine your strategy, remember these methods of measurement offer value individually. When measuring campaign health and ad effectiveness, MER vs ROAS has use cases for each to look at top level data as well as smaller parts of marketing campaigns. Both tools will provide unique data to understand the entire system, leading to optimized growth over time.
Subscribe to my LEAN 360 newsletter to learn more about startup insights.
