Last-Click ROAS is Dead. Long Live MER.
Josh Ma is MuteSix’s VP of Growth Strategy. In this role, he has helped to evolve the agency’s strategy and internal capabilities in support of end-to-end growth across omnichannel media solutions for disruptor brands. Beyond infrastructure oversight, Josh collaborates with brand leaders to provide strategic analysis and recommendations for accelerating sustainable growth.
With the fast-and-furious degradation of pixel-based attribution models accelerated by Apple’s privacy-first iOS 14 rollouts, the rising popularity of ad blockers, and the demise of third-party cookies, brands looking to last-click ROAS have been struggling to make sense of falling performance.
Given how saturated and competitive most shopping verticals have become amidst economic headwinds, growth-minded brands must divert their attention away from last-click ROAS, toward a tried-and-true metric known as Marketing Efficiency Ratio or MER.
Hear us out.
But, First. What Is Last-Click ROAS?
In the ever-shifting world of digital advertising, ROAS, also known as last-click ROAS, has consistently been the golden measure of performance.
But, we’re going to let you in on a secret: The days of last-click ROAS as a dependable measure of campaign efficacy are long gone.
And, if we’re really honest: they have been long gone for a while.
Why? Because It is a flawed measurement, made for simplicity.
What Makes Last-Click ROAS Flawed?
From a business perspective, last-click ROAS offers a digestible way to attribute dollars spent to dollars made by individual efforts. Whether in-platform, Google Analytics, or a Multi-touch Attribution tool, the purpose of last-click ROAS has been to gauge each channel’s contribution to a sale. It does this by looking at the last touchpoint a consumer interacted with before making a purchase.
However, this one-dimensional measure can actually hinder your efforts to scale tangible revenue growth, mainly because while it shows where demand was eventually captured, it does not show where that demand was created. This creates a bottleneck given many ad-driven purchases occur long after an initial advertisement is seen.
The attribution-based online marketing world that marketers have known for the past two decades is rapidly disappearing, mainly because it:
- Creates short-sighted bias. It leads many decision-makers to over-invest in tactics like Brand Search, where last-click ROAS is high, rather than investing in upper- and mid-funnel tactics to truly drive new customer demand (aka, new incremental revenue). The result is a false sense of growth as you maintain a high last-click ROAS, while your gross revenue remains stagnant.
- Relies on pixel-based attribution. Starting with the iOS 14 updates, brands and platforms have less data for audience targeting and less visibility into individual media behaviors for tracking and reporting. Whether in-platform, through Google Analytics, or with other pixel-based reporting solutions, decision makers no longer get a complete data set of consumer behavior because attribution has been growing increasingly inadequate.
- Ignores the importance of LTV. Achieving high LTV should always be the goal for brands looking to grow their business for the long-haul, and doing so requires an empathic understanding of what matters most to your customers. Without building trust and celebrating your key value props before and after acquisition, brands will have to fight an uphill battle against diminishing returns as their pool of “low-hanging fruit” dwindles to nothing.
- Fails to look at the full picture. Marketing channels do not live in vacuums, and last-click ROAS completely ignores the complexities and synergies of customer journeys, cross-media behaviors, and actual growth drivers. Optimizing campaigns and budgets based on last-click ROAS prevents brands from considering the impact that paid media have on both paid and organic channels.
For an accurate snapshot of your marketing program’s holistic health, brands need to look elsewhere–and that elsewhere is MER.
Marketing Efficiency Ratio (MER) to the Rescue
MER provides a view of total dollars spent to dollars made (gross revenue). It is a performance measure of the totality of your marketing efforts with a simple equation:
Total gross revenue / total ad spend
From a business perspective, we’re simply looking at dollars out, dollars in.
At MuteSix, we laud it as the most reliable and robust metric, as it shows what your revenue multiplier is on marketing costs. It’s important to note, however, that it is not meant to guide media investment decisions at the campaign or ad level.
Very few will try to argue that individual marketing efforts result in one-dimensional results. For instance, your Facebook ads aren’t impacting just your Facebook-attributed sales. They also have an impact on your organic search, Paid Search, direct traffic, and other marketing efforts.
For that reason, brands need to look to MER for a more holistic snapshot of the efficacy of their paid media investments.
The Myriad Benefits of MER
Marketers have been trying to identify more effective top-line metrics so as to see through the fog of multi-touch attribution. While better measurement solutions have popped up, even those have become ineffective since Apple’s iOS 14 signal loss.
With MER, marketers take a holistic view of campaign efforts in order to better understand their efficacy as well as the health of the business as a whole.
What’s more, MER enables brands to gauge the trajectory of their revenue growth because it:
- Takes into account the total revenue generated–not just revenue generated by the last click. This provides a more comprehensive understanding of the overall effectiveness of a marketing program in terms of scale (sales volume) and efficiency (revenue multiplier).
- Shifts media KPIs to be secondary to business KPIs. This empowers marketing teams to set up their initiatives to directionally improve on tactic metrics across the customer journey, consider the halo effect on lower-funnel KPIs, and measure success based on actual top-line revenue growth. Equally important, this creates alignment between marketing and finance as we plan for growth.
- Considers revenue drivers across the entire customer journey. By looking at overall MER and segmenting revenue by customer type (i.e., first-time customers vs. repeat shoppers or subscribers), brands can identify bottlenecks and make long-term strategic decisions on growth opportunities at scale.
For instance, segmenting MER enables brands to determine if the biggest opportunity to scale is by focusing more efforts on FTCs, optimizing CAC, or nurturing higher LTV.
- Disassociates itself from attribution models. Instead of relying on pixels to attribute customer sales to a specific channel (a data set that we previously mentioned is increasingly less available), we take a look at the trajectory of media spend directly on incremental sales.
The Key to Success When Using MER
The best way to continue testing the impact of various channels, tactics, and messaging on revenue is to pair MER with incrementality testing and statistical-based approaches like Marketing Mix Modeling (MMM).
MMM is a highly resilient, data-driven statistical analysis that quantifies the incremental sales impact and ROI of marketing activities. A holistic model, it is used to understand how to allocate a marketing budget across marketing channels and can help forecast the impact of future campaigns.
MMM can accurately track the performance of campaigns to accelerate profitable, long-term growth.
Meet M6’s MMM
In fact, well aware of its power to better measure performance in a privacy-first world, MuteSix pioneered its own MMM solution, unlike any of its kind. Here’s why:
For brands that have the budget, historical data, and appetite to test & learn for the sake of breaking business goals, MuteSix’s MMM could be just the measurement solution for you.
A Final Word: It’s Time to Ditch Last-Click ROAS
Brands that rely on last-click ROAS will continue to experience stagnation with their marketing results–no matter how strategic and aggressive their marketing efforts.
To remain competitive, brands need to focus instead on direct business outcomes, leverage full-funnel media KPIs as directional guides addressing clear objectives, and prioritize their resources on customer-centric efforts that actually drive incremental revenue growth.
At MuteSix, our data-driven marketing strategies and measurement solutions go beyond ROAS to deliver higher-quality customers for greater lifetime value.
If you’re a brand looking for more reliable, real-time measurement solutions to accelerate record-breaking success, reach out to our team of Marketing Science and Growth Strategy experts today.