In the dynamic world of digital marketing, Return on Ad Spend (ROAS) has become one of the most discussed and used metrics to measure the effectiveness of online advertising campaigns. However, it is important to recognize that ROAS is not the only useful marketing metric, and a holistic approach should include a wide range of metrics to accurately assess campaign performance.
What is ROAS?
ROAS, which is the ratio of revenue generated from sales to advertising spend, provides a clear insight into conversion effectiveness. However, there are many aspects of marketing strategies that are not directly reflected in this indicator. For example, increasing brand visibility, audience engagement and customer loyalty may bring long-term value, but are not necessarily immediately quantifiable in exact ROAS figures.
Firstly, high ROAS does not mean high revenue or profitability.
For example, if we spend 10 lei on paid campaigns and we collect 100 lei, it means a ROAS of 10 (ROAS = revenue : budget spent). If we spend 100 lei and collect 500 lei, it means ROAS 5, but the revenue is 5 times higher. I have often encountered situations where a high ROAS did not mean profitability for the client.
Secondly, it is important to consider the impact of the campaign in an adjacent way.
A user who sees paid advertising and makes a purchase is likely to become a repeat customer, a loyal customer and then the investment in paid advertising that brought the repeat user is much more profitable. At the same time, a user may recommend the brand and so the actual revenue can be higher than what we see in the advertising platforms.
Last but not least, it is hard to track the journey a user has after seeing ads.
For example, the user sees the ad in Meta Ads and saves the post. A few days later, they see the ad in Google Ads and a few days later they search in Google and buy from organic display. This conversion is not attributed to the advertising channels, but at the core they have had an impact on the purchase decision.
To evaluate the profitability of online campaigns it is recommended to track the entire promotion activity.
MER vs. ROAS: Choosing the strategic perspective in measuring effectiveness
MER (Marketing efficiency ratio) is the marketing efficiency ratio and deals with the total revenue divided by the total advertising spend from all marketing channels. It is similar to ROAS (return on ad spend), but the difference here is that we are dealing with totals, without breakdowns by ad or channel, because we want to understand the holistic and cumulative effects of our total marketing efforts.
When you move from ROAS to MER, you leave the attribution issue behind and instead focus on overall effectiveness.
In addition, you also solve the problem of over-optimization for conversion-focused campaigns. This allows you to better understand the results when adjusting your brand building investment for direct performance campaigns.
ROAS is like taking a magnifying glass and magnifying all the details; it can be useful, but it can also cause you to miss the bigger picture. MER is the missing value, which is about understanding long-term strategy and how your marketing efforts work together for results.
Other indicators we can consider are:
Other key performance indicators in marketing: a more complete picture of success.
CPC (Cost per Click):
Measures the efficiency of advertising spend by calculating the average cost per click per ad. This indicator can be crucial for evaluating the effectiveness in attracting relevant traffic to your website.
CPA (Cost per Acquisition):
Calculates the average cost of each desired action, such as an acquisition or an email list subscription. CPA is essential to understand how effective your campaign is in converting visitors into customers.
CTR (Click-Through Rate):
Measures the percentage of people who clicked on the ad in relation to the total number of people who saw it. This indicator can indicate how well the ad resonates with the target audience.
Lifetime Value (LTV):
The average lifetime value rating of customers. This indicator is crucial to understanding the long-term value brought by marketing campaigns.
Social Media Engagement:
Engagement on social media platforms, such as number of likes, comments and shares. These can provide clues as to audience interaction and interest in your content.
In conclusion, ROAS is only part of the puzzle when it comes to evaluating marketing campaigns. Choosing to look only at this indicator can lead to a limited view of campaign success. By examining a broader spectrum of metrics, marketers can gain a more complete perspective and more detailed information about how their campaigns are impacting overall business goals.
To help you successfully navigate this complex world, we invite you to get in touch with our experts at online marketing agency re7consulting. Discover a trusted marketing services partner who will carefully guide you in achieving the results you want. Together, we can take your marketing to the next level.