Beyond MER: Unlocking Sustainable Growth with ROAS and UMM
In digital marketing, measuring success is of the highest importance. Yet, navigating through the vast collection of metrics can feel like deciphering enigmas. One such metric, the Marketing Efficiency Ratio (MER), has gained popularity for its simplicity. But is simplicity always beneficial, especially for businesses chasing growth? Perhaps it's time we explore beyond the surface.
The Pitfalls of MER in Growth Marketing
While the Marketing Efficiency Ratio (MER) might appear as an attractive marketing metric for measuring success thanks to its straightforward formula, it’s essential to examine its real-world implications for businesses aiming for growth. We’re increasingly hearing that some companies lean heavily on MER as their primary performance metric. But here’s a word of caution: This reliance can be dangerously misleading.
Consider this scenario: Your business, without any advertising spend, is generating a base revenue of €50,000. Now, let’s say you decide to invest €10,000 in advertising, and your turnover leaps to €100,000. At first glance, achieving a MER of 10 seems like a victory. However, the pursuit of a higher MER, say 20, might tempt you to cut back on advertising spend. This strategy, while boosting your MER on paper, could halt your growth momentum in reality.
This is a simplistic example, but let’s look at 3 more reasons why MER is a red flag: As your business grows, growth will come at you from different sides besides advertising. As you do well in other areas, your revenue increases, which then encourages you to increase ad budgets, even though they weren’t responsible for the increase of revenue! For example:
- You start to get more word of mouth, because your user base is bigger.
- You get featured by the press, which builds awareness of your brand.
- You begin ranking higher on Google for key commercial terms.
The Case for ROAS
In contrast to MER’s broad strokes, Return On Ad Spend (ROAS) offers a magnifying glass into the effectiveness of each dollar spent on advertising. By calculating the direct revenue generated from specific advertising campaigns relative to their cost, ROAS provides marketers with a precise measure of success.
What makes ROAS invaluable is its ability to highlight the efficiency of individual campaigns. For instance, if one campaign generates $5 for every $1 spent, while another only returns $2, the choice becomes clear. This granularity allows for strategic budget reallocation, ensuring that marketing dollars are consistently channeled into the most profitable avenues.
Right now ROAS is not in a good position, since much of the tracking nowadays is not completely accurate. Therefore making companies lean in wrong directions with their strategy and creating biases for channels.
The Power of Unified Marketing Measurement (UMM)
While ROAS excels at evaluating the profitability of campaigns, Unified Marketing Measurement (UMM) takes a step back to provide a panoramic view of marketing effectiveness across all channels and campaigns. UMM integrates data from various sources, including digital and offline channels, to offer a comprehensive understanding of how different marketing efforts contribute to overall business goals.
The strength of UMM lies in its holistic approach. By accounting for the myriad ways consumers interact with a brand, UMM allows marketers to assess the collective impact of their strategies. This broad perspective is crucial for identifying synergies between channels and optimizing the marketing mix for better overall performance. For businesses focused on long-term growth, UMM’s ability to illuminate the entire marketing landscape is indispensable, guiding more informed strategic decisions that drive sustainable expansion.
Combining ROAS and UMM for Growth
Leveraging both ROAS and UMM presents a formidable approach to marketing measurement (Full-Funnel ROAS). Full-Funnel ROAS, with its campaign-level precision, complements UMM’s broad, integrated view, offering marketers a dual lens through which to evaluate their efforts. This combination empowers businesses to not only fine-tune individual campaigns for maximum efficiency but also ensure that their overall marketing strategy is aligned with long-term growth objectives.
By embracing these metrics, companies can move beyond the limitations of MER, avoiding the pitfalls of short-sighted optimization for the sake of efficiency ratios. Instead, they’ll position themselves for genuine, sustainable growth, capitalizing on the insights provided by ROAS and UMM to make smarter, more strategic marketing investments.
Conclusion
The attractiveness of a simple metric like MER is understandable, but as we’ve explored, it falls short of providing the depth and width of insight needed for businesses pursuing growth. By adopting a more nuanced approach with ROAS and UMM, marketers can ensure they’re not just chasing higher efficiency ratios but are genuinely driving their businesses forward.
The ability to adapt and adopt more sophisticated measurement tools is what will distinguish the growth-oriented from those content with stagnation.
Our general rule of thumb is to never trust just one metric though, always have a multi-metric approach. Often if one contradicts the other you can immediately see a case of an inconsistency and you are able to tackle faulty metrics at a very early stage in your strategy.
