In the world of digital advertising, Mark Twain’s famous quote, “Reports of my death have been greatly exaggerated,” finds a new context. Instead of Twain, we’re talking about ROAS (Return on Ad Spend) bidding. Recently, there has been a buzz among agencies and advertisers claiming that ROAS is dead, replaced by metrics like MER (Media Efficiency Ratio). At StubGroup, a Premier Google Partner digital advertising agency, we respectfully disagree. We’ll explain why we still value ROAS and share insights from Google’s dedicated team on this topic.
Defining ROAS and MER
Before delving into the debate, let’s define the terms. ROAS, or Return on Ad Spend, is a metric that measures how many dollars of revenue you generate for every dollar spent on advertising. For instance, if your advertising spend is $1,000, and you make $2,000 in revenue, your ROAS is 2x or 200%.
On the other hand, MER, or Media Efficiency Ratio, is a higher-level metric used to assess the total revenue generated compared to the total ad spend across all platforms. It provides a holistic view of advertising efficiency. For instance, if you generated $100,000 in revenue with an ad spend of $25,000, your MER would be 4.
The Problems with ROAS and Its Uses
Some argue against ROAS due to legitimate concerns about how it operates within specific platforms like Google Ads. The challenge arises when attributing revenue to different stages of the customer journey. For example, if you run a high-funnel YouTube campaign to build awareness, and users later click on a branded ad after searching for your company, the revenue often gets attributed primarily to the branded click. This can lead to misunderstandings with clients who see low ROAS for high-funnel campaigns and may consider cutting the budget.
However, the problem isn’t with ROAS itself but with how platforms attribute revenue. In the case of Google Ads, they have a bias toward taking credit for revenue generated within their ecosystem. This bias can’t be ignored when discussing the shift to MER.
Our conversation with Google’s dedicated team emphasized that while agencies are shifting toward MER in client discussions, they are still using ROAS when making granular decisions and employing automated bidding strategies within platforms. The reason is simple: Google Ads offers the efficient and effective Target ROAS bidding strategy, which can’t be replicated if ROAS is abandoned.
What This Means for Your Business
As a business owner or advertiser, we recommend using both MER and ROAS to inform your advertising strategies. MER is valuable for assessing the overall efficiency of your ad spend and making high-level budget allocation decisions. You can use it to evaluate shifts in ad budget between platforms and analyze the impact on your total efficiency and revenue.
On the other hand, ROAS remains essential for optimizing ad campaigns within specific platforms. It guides bidding strategies and ensures you leverage the most effective automated bidding options provided by platforms like Google Ads.
Conclusion
In the ever-evolving landscape of digital advertising, it’s essential to adapt and utilize the tools and metrics at your disposal. Reports of ROAS’s demise are indeed exaggerated. Rather than dismissing it, we encourage businesses to embrace both ROAS and MER as complementary tools for achieving advertising success.
Have you encountered this debate in your business? We’d love to hear about your experiences and which metrics you find most valuable. Share your thoughts with us at stubgroup.com.