In the ever-evolving world of online advertising, businesses often face the challenge of measuring the success of their ad campaigns. Traditionally, Return on Ad Spend (ROAS) has been the go-to metric for gauging the effectiveness of ad spend. However, with increasing privacy regulations and changes to tracking capabilities, relying solely on ROAS may not provide the full picture. In this blog post, we will explore the concept of Media Efficiency Ratio (MER) and why it is becoming a crucial metric for businesses aiming to dominate Google Ads and make money online.
Understanding Return on Ad Spend (ROAS)
Return on Ad Spend (ROAS) has long served as a fundamental metric for businesses seeking to evaluate the effectiveness of their advertising expenditure, especially in the digital realm. By calculating ROAS, businesses can determine the revenue generated in proportion to their ad spend. For example, if a business invests $1 in advertising and yields $10 in revenue, the ROAS would be 10x. However, while ROAS has proven useful, it faces challenges when accurately tracking user actions due to factors such as privacy-oriented legislation, changes in browsers, and difficulties in cross-device tracking.
The Limitations of ROAS
As we mentioned above, ROAS faces constraints when it comes to precisely tracking user actions. While analyzing the ROAS for each ad within a campaign provides valuable information, comparing vastly different campaigns presents a unique situation. For example, contrasting YouTube campaigns aimed at increasing brand awareness with search campaigns targeting pre-qualified users may not provide a complete understanding when relying solely on ROAS.
Introducing Media Efficiency Ratio (MER)
Media Efficiency Ratio (MER) is a simple yet powerful concept that focuses on a business’s overall profitability concerning its ad spend. Essentially, MER assesses whether a business is making more total revenue after investing in advertising. By comparing the total revenue from new customers against the ad spend over specific time frames (usually monthly), businesses can calculate their MER. For example, if a business spent $50,000 on ad spend and generated $100,000 in revenue from new customers, the MER would be 2.
The Importance of MER
MER becomes valuable when testing different budget allocations between various platforms or strategies. By tracking MER over time, businesses can gauge how efficiently their ad spend is translating into revenue. For instance, reallocating budget from one platform to another can help determine whether the new strategy is more effective in generating revenue, even if the tracked ROAS for that platform appears lower.
Embracing the Power of Media Efficiency Ratio (MER) alongside ROAS
While Return on Ad Spend (ROAS) remains a relevant metric for assessing ad campaign performance, it is vital for businesses to consider the broader picture by incorporating Media Efficiency Ratio (MER). By looking beyond individual ad performance and evaluating the overall profitability of ad spend, businesses can gain deeper insights into their marketing efforts. As the digital advertising landscape continues to evolve, leveraging both ROAS and MER can be the winning formula for businesses aiming to dominate Google Ads and achieve sustainable online success.