If you’ve been obsessing over ROAS (Return on Ad Spend), you’re not alone. It’s a shiny, easy-to-understand metric that makes you feel like your ads are working and to be honest, the easiest way for agencies like ours to help you see results. But here’s the thing—ROAS alone doesn’t tell the full story of your business’s profitability or long-term sustainability.
If you want to scale and stay profitable, you need to zoom out and focus on the bigger picture. That’s where MER (Marketing Efficiency Ratio), CAC (Customer Acquisition Cost), and LTV (Customer Lifetime Value) come in.
Let’s break it down—without the jargon.
MER: Your Business’s Overall Efficiency
MER (Marketing Efficiency Ratio) is the easiest way to see how your entire marketing strategy is performing. It’s calculated by dividing total revenue by total ad spend. Unlike ROAS, which looks at individual campaigns or platforms, MER gives you a bird’s-eye view of how well your marketing dollars are working.
How to calculate it:Total Revenue ÷ Total Ad Spend = MER
What it tells you:
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If your overall marketing efforts are profitable
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Whether you’re spending too much (or too little) on ads
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How efficient your business is at converting ad spend into revenue
Think of MER as your big picture profitability metric. If your ROAS looks great but your MER is struggling, it means your business as a whole isn’t scaling efficiently. You can learn more about MER here: https://brightredmarketing.com.au/understanding-marketing-efficiency-ratio-for-real-growth/
CAC: What It Costs to Get a New Customer
Customer Acquisition Cost (CAC) is one of the most important numbers for any eCommerce business. It tells you how much you’re spending—on average—to acquire a new customer. The lower your CAC, the more profitable your business.
How to calculate it:Total Ad Spend ÷ Number of New Customers = CAC
What it tells you:
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How much it actually costs to bring in new buyers
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If you’re overspending to acquire customers
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Whether your targeting and conversion funnel need improvement
High CAC? It’s time to refine your ad creative, improve your landing pages, and optimise your targeting to attract higher-intent buyers. You can learn more about CAC and how to lower these costs here: https://brightredmarketing.com.au/how-to-lower-customer-acquisition-costs-without-sacrificing-quality
LTV: The Long-Term Value of a Customer
LTV (Customer Lifetime Value) is the holy grail of sustainable growth. While CAC tells you how much it costs to acquire a customer, LTV tells you how much that customer is worth over time. A high LTV means customers are coming back, buying again, and increasing your profitability.
How to calculate it:(Average Order Value) × (Purchase Frequency) × (Customer Lifespan) = LTV
What it tells you:
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If your customers are sticking around or just making one-off purchases
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Whether you need to improve retention strategies (like email & SMS marketing)
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Whether your product is something people come back for again and again
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If your business model supports long-term profitability
A healthy LTV-to-CAC ratio is around 3:1 or higher. That means for every dollar you spend to acquire a customer, you want them to generate at least three dollars in revenue over time.
Why This All Matters (and How It Works Together)
ROAS alone can be misleading. A campaign might look great on the surface, but if CAC is too high or LTV is too low, you’ll struggle to stay profitable.
Here’s how these numbers work together:
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MER shows if your marketing strategy is sustainable overall.
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CAC ensures you’re acquiring customers at a profitable rate.
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LTV proves whether those customers are worth the investment long-term.
If you’re scaling an eCommerce business, focusing on these bigger picture metrics will set you up for growth that lasts—without burning through ad spend.
Chasing ROAS might feel good in the short term, but true profitability comes from balancing MER, CAC, and LTV. If you want to scale without stress (or surprise cash flow issues), it’s time to look beyond ROAS and start tracking the numbers that actually matter.
Need help making sense of your metrics? Let’s chat about how to optimise your ad strategy for long-term success.
