In the realm of marketing metrics, there are two important benchmarks often used to gauge campaign performance and profitability: ROAS and MER. Understanding the nuances between these two metrics is crucial for Australian marketers and business owners striving to optimise their advertising and digital marketing strategies.
In this quick ROAS vs MER guide, we are going to explore the qualities and differences of both metrics to help you make better business decisions in the future.
What is ROAS?
ROAS stands for Return On Advertising Spend. It’s a metric used to measure the effectiveness of a specific advertising campaign by evaluating the revenue generated for every dollar spent on advertising. The formula for calculating ROAS is simple:
ROAS = Revenue / Advertising Costs
For instance, if a campaign generates $10,000 in revenue from a $2,000 advertising spend, the ROAS would be 5x ($10,000 / $2,000).
What is MER?
MER, on the other hand, stands for Marketing Expense Ratio. It’s a broader metric that assesses the efficiency of overall marketing efforts by evaluating the total marketing expenses relative to the total revenue generated. The formula for MER is:
MER = Revenue / Total Marketing Expenses
For example, if a company spends $50,000 on marketing in a year and generates $500,000 in revenue, the MER would be 10% ($50,000 / $500,000 x 100).
ROAS vs. MER: Which One is Better?
So, the big difference between ROAS and MER is that the first only takes into account advertising costs, while the second equates all marketing expenses of a given campaign. Both metrics offer valuable insights, but, in the end, they do serve different purposes:
- ROAS focuses specifically on the efficiency of individual advertising campaigns. It helps marketers understand the direct impact of their ad spending on revenue generation for a particular campaign.
- MER provides a holistic view of the overall marketing spend concerning the total revenue generated. It considers all marketing expenses, including salaries, overhead, and various campaign costs, offering a broader perspective on the effectiveness of the entire marketing strategy.
Neither metric is inherently better than the other; however, they complement each other in providing a comprehensive understanding of different aspects of marketing performance.
The Importance of Using ROAS/MER Metrics
Despite their differences, ROAS and MER are both indispensable for Australian marketers and business owners, and most experts agree everyone should use a blend of the two. It’s no surprise: after all, these metrics can be incredibly effective when paired together, and have several beneficial uses:
- Optimising Campaign Performance: ROAS helps in identifying high-performing campaigns, allowing marketers to allocate budget more effectively to the most profitable channels.
- Budget Allocation: Understanding MER helps in budget allocation across different marketing channels or strategies. It assists in determining which areas need more investment and which might require optimisation to improve efficiency.
- Strategic Decision-Making: Both metrics aid in making informed decisions about resource allocation, strategy adjustments, and overall marketing budget planning, leading to more effective and efficient marketing initiatives.
- Performance Tracking: Continuous tracking of ROAS and MER provides insights into trends and predictions, allowing for timely adjustments and optimisation of marketing strategies to adapt to changing market conditions.
In conclusion, ROAS and MER are both valuable metrics offering distinct perspectives on marketing performance. While ROAS evaluates the efficiency of specific campaigns, MER provides a broader view of overall marketing expenses. Incorporating both metrics into your analytics toolkit empowers you to make data-driven decisions and optimise marketing strategies for sustained success in the competitive Australian market.