{"id":32146,"date":"2023-08-22T16:32:26","date_gmt":"2023-08-22T14:32:26","guid":{"rendered":"https:\/\/webgas.net\/how-much-should-you-invest-in-advertising-mer-roas\/"},"modified":"2023-12-06T12:16:48","modified_gmt":"2023-12-06T11:16:48","slug":"how-much-should-you-invest-in-advertising-mer-roas","status":"publish","type":"post","link":"https:\/\/webgas.net\/en\/blog\/how-much-should-you-invest-in-advertising-mer-roas\/","title":{"rendered":"How much should you invest in advertising? Find out by calculating your MER"},"content":{"rendered":"\n

Do you want to calculate your free breakeven ROAS\/MER? Do it now using our free calculator<\/a>.<\/p>\n\n\n\n

Introduction<\/h2>\n\n\n\n

A question that is quite common among e-commerce brand managers is: ”\n How much budget can we spend on advertising?<\/strong>\n<\/em>”.<\/p>\n\n\n\n

This is certainly a legitimate question but in a sense erroneous since it does not take into account the danger of overspending (overspending<\/strong><\/em>), which reduces margins and consequently profits.<\/p>\n\n\n\n

A more ”sensible” question is: ”How much budget can we allocate in advertising so as to achieve profit?<\/em> ”<\/p>\n\n\n\n

The probably more correct question to ask is ”\n When will my next euro invested in advertising stop generating profits for me?<\/em> <\/strong>\n<\/a>”.<\/p>\n\n\n\n

The purpose of this question is as follows: to avoid overspending, <\/strong>which burns revenue by taking us into loss.<\/p>\n\n\n\n

Fortunately, in defining the ideal ad spend<\/strong>, an extremely valuable ally for advertisers comes into play known as the MER<\/strong> (Marketing Efficiency Ratio), also known as the “overall ROAS,” which allows them to ”cover up” some of the shortcomings of a much better-known indicator: the Campaign ROAS (Return on Ad Spend).<\/p>\n\n\n\n

So let us look together at the concept of MER (Overall Roas), the formula for calculating it, and the limitations of the ROAS indicator that it remedies.<\/p>\n\n\n\n

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Definition of MER and the limits of ROAS<\/h2>\n\n\n\n

The \n MER<\/mark>\n<\/strong>, an English acronym for Marketing Efficiency Ratio<\/strong> (\n I<\/em>\n<\/strong>\n ndex of Marketing Efficiency<\/strong>\n<\/em> in Italian), also called \n Overall ROAS<\/strong>\n<\/em> measures the overall performance of efforts made in various digital marketing campaigns <\/mark> and it is simply The ratio of total revenues to total expenses<\/strong> incurred<\/strong>, considering all the various channels and advertising campaigns, in a given time period.<\/strong><\/p>\n\n\n\n

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MER Formula<\/a><\/figcaption><\/figure>\n\n\n\n

Assuming total marketing expenditure seems to be 100,000 euros against total sales revenue of 300,000 euros, the MER will simply be 3x.<\/p>\n\n\n\n

MER = 300,000\/100,000 = 3<\/strong><\/p>\n\n\n\n

This number indicates that total revenues are worth three times the marketing expenditure incurred.<\/strong><\/p>\n\n\n\n

The \n ROAS<\/mark>\n<\/strong>, an English acronym for Return On Advertising Spend<\/strong> (\n Return on Advertising Spending<\/em>\n<\/strong> in Italian) measures the return generated by one or more specific advertising campaigns or a single advertising channel, taking into account only the advertising costs and revenues of a specific advertising channel or campaign <\/strong>. <\/mark><\/p>\n\n\n\n

\"MER
ROAS Formula<\/figcaption><\/figure>\n\n\n\n

Assuming advertising investments of 10,0000 euros with revenues from the same campaigns of 40,000 euros, ROAS simply amounts to 4x (or 400% if expressed as a percentage).<\/p>\n\n\n\n

ROAS = 40,000\/10,000 = 4<\/strong><\/p>\n\n\n\n

This value indicates that for every euro invested in such campaigns, four euros came back to me in the form of revenue.<\/strong><\/p>\n\n\n\n

\n Please note.<\/em>\n<\/strong>: MER takes into account total <\/strong>marketing expenses and revenues incurred in a given time interval, while ROAS only takes into account expenses and revenues from certain advertising campaigns<\/strong>.<\/mark><\/p>\n\n\n\n

Although ROAS is undoubtedly the most beloved indicator for most advertisers as it provides immediate insights into campaign performance, it has some limitations such that a more comprehensive analysis with the support of the MER indicator is required. We mention 3 of the most relevant limitations of ROAS<\/mark>:<\/p>\n\n\n\n