The metrics you choose to evaluate performance can make or break your marketing campaigns. Return on Ad Spend (ROAS) has been a long-standing favorite as a North Star Metric, but relying solely on ROAS to evaluate campaigns is a mistake that could cost you. As marketing strategies have evolved, it’s become clear that ROAS, while useful, can lead decision-makers astray when viewed in isolation. Savvy CMOs and Heads of Performance Marketing also track a more holistic metric: the Media Efficiency Ratio (MER). This article dives into why ROAS falls short, why MER gives you a clearer picture of marketing efficiency, and how to calculate MER the right way. We’ll also connect the dots on how the same principles behind tracking MER underscore the critical role of Incrementality Testing and Marketing Mix Modeling (MMM) in assessing marketing performance.

The Limitations of ROAS

ROAS is a straightforward metric that measures the revenue generated for every dollar spent on advertising. For example, a ROAS of 5x means that for every dollar spent on advertising, five dollars were generated in revenue. While this seems like a clear and useful metric, it has several limitations that can lead to misguided decision-making.

1. Attribution Challenges

One of the primary issues with ROAS is its reliance on accurate attribution. As privacy regulations tighten and third-party cookies become less reliable, accurately attributing revenue to specific ads or campaigns is increasingly difficult. Platforms like Google and Facebook often over-attribute conversions to their channels, which can inflate ROAS figures. This can lead marketers to believe that certain campaigns are more effective than they actually are.

2. Overemphasis on Short-Term Gains

ROAS is often calculated on a per-campaign basis, leading to an overemphasis on short-term gains rather than long-term growth. For instance, brand awareness campaigns, which are essential for long-term customer acquisition, typically show lower ROAS because their impact is not immediate. Focusing solely on ROAS may discourage investment in these crucial top-of-funnel activities, skewing the overall marketing strategy​.

3. Ignoring Customer Lifetime Value (CLV)

ROAS does not account for the lifetime value of customers. A campaign that brings in lower ROAS but attracts high lifetime value customers could be more beneficial in the long run than a high ROAS campaign that only drives one-time purchases. By focusing solely on ROAS, businesses may miss out on opportunities to build long-term customer relationships that ultimately drive more revenue​.

Why MER Is a Superior Metric to ROAS

Given the limitations of ROAS, the Media Efficiency Ratio (MER) emerges as a superior metric for evaluating marketing performance. MER provides a broader perspective by considering the overall efficiency of marketing efforts across all channels, rather than isolating individual campaigns.

1. What is MER?

MER is a ratio of total revenue generated by a company to its total marketing spend. It is calculated by dividing the total revenue by the total ad spend, providing a top-line view of how efficiently a company’s marketing budget is being utilized. Unlike ROAS, MER is agnostic to individual campaigns and attribution, making it a more reliable metric in today’s complex, multi-channel marketing environment​.

2. Holistic View of Marketing Performance

MER offers a holistic view of marketing performance by capturing the impact of all marketing activities, not just those that can be directly attributed to a specific ad spend. This is crucial in an era where customer journeys are fragmented across multiple touchpoints and devices. By focusing on MER, marketers can ensure that they are optimizing the overall efficiency of their marketing spend, rather than just chasing high ROAS on individual campaigns.

3. Long-Term Growth Focus

Because MER takes into account the total revenue generated by the business, it inherently encourages a focus on long-term growth rather than short-term wins. This aligns better with business objectives that prioritize sustainable growth and customer retention over time. It also allows marketers to invest confidently in brand-building activities that may not yield immediate returns but are essential for long-term success​.

Calculating MER Correctly

Calculating MER is relatively simple but requires a comprehensive understanding of your total revenue and total marketing spend.

Step 1: Calculate Total Revenue

The first step in calculating MER is to determine the total revenue generated by your business over a specific period. This should include all sources of revenue, not just those directly attributed to your marketing efforts. For a more nuanced view, businesses can also calculate MER for new customer revenue separately from returning customer revenue, which can help in understanding the efficiency of customer acquisition efforts versus retention.

Step 2: Calculate Total Marketing Spend

Next, you need to sum up all the marketing expenses incurred during the same period. This includes ad spend across all channels, as well as other marketing-related costs such as content creation, agency fees, and technology expenses. The goal is to capture the full cost of your marketing efforts to ensure an accurate MER calculation​.

Step 3: Divide Total Revenue by Total Marketing Spend

Finally, divide the total revenue by the total marketing spend to get your MER. For example, if your total revenue is $500,000 and your total marketing spend is $100,000, your MER would be 5. This means that for every dollar spent on marketing, your company generated five dollars in revenue​.

MER vs. ROAS: A Comparative Example

To better understand the difference between MER and ROAS, consider a business that runs multiple marketing campaigns across various channels.
Campaign A might have a ROAS of 3, meaning it generates $3 for every $1 spent, while Campaign B has a ROAS of 7. On the surface, it might seem that Campaign B is more efficient. However, when looking at the overall MER, which takes into account the total revenue generated from all campaigns and the total marketing spend, it may turn out that the high ROAS of Campaign B does not significantly impact the overall business revenue. In fact, if Campaign A drives brand awareness and new customer acquisition that leads to higher lifetime value, its contribution to long-term growth might be more substantial, even with a lower ROAS​.

MER-Driven Marketing Managers Are Better Managers

By measuring the ratio of total revenue to total marketing spend, MER takes a high-level view of the effectiveness of marketing as a whole. This broader perspective encourages marketers to move away from compartmentalized, channel-specific thinking and to assess how well marketing investments are working in aggregate, and keeps away marketing teams’ efforts from the trap of micro-optimizations (a misallocation of human capital). It aligns more closely with overarching business goals by directly linking total marketing spend to total revenue, creating a clearer, more direct relationship between marketing input and business output.

Pairing MER Tracking with Incrementality Testing and MMM

Adopting MER is a great first step to move beyond the limitations of traditional performance marketing KPIs, but it’s only the beginning. MER provides a big-picture view but doesn’t delve deeply into causality—it tells us whether marketing as a whole appears efficient but not why certain efforts succeed or fail. In other words, MER is a correlation metric, showing that marketing spend and revenue are related but not demonstrating causation. It doesn’t identify which specific tactics or channels drive incremental growth, nor does it separate the effects of marketing from other influences, such as seasonality or market trends.

To get a fuller, more actionable picture of marketing’s true impact, businesses need to evolve from correlation-based metrics to causality-based ones. The logical next step is to begin measuring incrementality: the additional revenue generated as a direct result of marketing efforts, beyond what would have occurred naturally. This shift allows marketers to understand precisely which strategies drive actual growth versus those that merely correlate with it.

Achieving this level of insight requires a more sophisticated toolkit, primarily involving Marketing Mix Modeling (MMM) and incrementality testing. Together, these tools provide the rigorous, data-driven insights necessary to track and quantify the true incremental impact of marketing activities. MMM offers a way to understand the influence of various marketing efforts in the context of broader business and market dynamics, while incrementality testing uses controlled experimentation to directly measure the causal impact of specific campaigns or channels.

Incrementality Testing
Incrementality testing helps determine the additional impact of your marketing efforts by comparing outcomes from exposed groups (those who see your ads) to control groups (those who don’t). This approach helps in understanding the true value of your marketing activities by isolating the impact of advertising from other factors that might influence conversions. When combined with MER, incrementality testing provides a deeper understanding of how your marketing spend drives actual business growth, beyond what traditional attribution models can capture​.

Marketing Mix Modeling (MMM)
MMM is a statistical analysis technique that evaluates the impact of various marketing activities on sales performance over time. By analyzing the relationship between marketing spend and sales, MMM helps in understanding the effectiveness of different channels and campaigns, enabling more informed budgeting and optimization decisions. MMM complements MER by providing a detailed breakdown of how different marketing channels contribute to overall business revenue, helping marketers optimize their mix to achieve the best possible MER.

In conclusion, while ROAS has been a staple metric in digital marketing, its limitations are becoming more apparent in today’s complex marketing landscape. By focusing solely on ROAS, businesses risk making short-sighted decisions that overlook the broader impact of their marketing efforts. The Media Efficiency Ratio (MER) offers a more comprehensive perspective, encompassing all marketing activities and their contribution to overall revenue. This broader view is essential for informed decision-making and sustainable growth.

MER is an excellent foundational metric to move towards a holistic, value-driven view of marketing, and to lead a marketing team’s efforts towards macro-optimizations. But to truly understand marketing’s contribution to the bottom line and optimize for sustainable growth, businesses must move further into causal analysis. With MMM and incrementality testing, marketers can advance from merely correlating spend and revenue to quantifying the exact contribution of each marketing activity, enabling more strategic, data-informed decision-making that genuinely drives business growth.

For any CMO or Head of Performance Marketing aiming to stay ahead in the competitive digital landscape, embracing these metrics and methodologies is not just an option—it’s a necessity.

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