Skip to content
Back to Blog Avoid ROAS Trap with these Metrics
Amazon

Avoiding the eCommerce ROAS Trap with Better Metrics

As capital has become more expensive, eCommerce brands should look to get smarter about the metrics they use to gauge success. ROAS leaves us wanting.

Nevin Zavell
Nevin Zavell

Jul 20, 2023

The Search for Better eCommerce Advertising Metrics

As my colleague, Michael, pointed out in his ROAS Trap post, the eternal search for a "source of truth" KPI in digital advertising continues. Every ad platform out there (Google Ads, Bing Ads, Amazon, Meta, you name it) touts ROAS as the ultimate KPI.


Consequently, performance agencies base their services on delivering a stellar ROAS. However, relying solely on ROAS without considering your margins only gives you a glimpse of your advertising performance and can wreak havoc on your business.

Changing the Narrative Around ROAS

Once upon a time, ROAS may have been a fine metric to treat as gospel. Interest rates were low, money was cheap, and businesses could scale rapidly even with slim margins.

2023 marls a significant shift in the way eCommerce businesses need to function.

The "move fast, break things" mindset of pursuing growth at any cost is no longer sustainable.

Instead, the focus has shifted towards capital efficiency, making it crucial to reassess eCommerce advertising metrics. It's time to move away from traditional goals and KPIs and embrace a profit-centric approach.

The New Big 3 Metrics for eCommerce Marketing

The metrics I would use to measure the performance of your advertising and the impact on your business are Contribution Margin on Advertising Spend (CMOAS), Marketing Efficiency Ratio (MER), and overall Profit Growth. These metrics provide a comprehensive view of your business. Sure, it involves a bit of math, but fear not, there are some nifty tricks to automate this process at the end.

1. CMOAS

Consider Contribution Margin on Advertising Spend to be ROAS on steroids; it paints an accurate picture of the impact of your advertising.

CMOAS

The formula is simple, Profit over Ad Spend. More specifically, CROAS = Ad Attributed Sales - Landing Costs of Products Sold - Ad Spend - Platform Fees - Rebates and Refunds all divided by Ad Spend.

This formula can be broken down by advertising channel or kept as a total of all advertising. This should provide an accurate figure of your advertising's impact on your business by factoring in all variable costs rather than a simple revenue.

For marketplaces like Amazon, figures like this are especially important, given the hefty Amazon fees levied on sellers for the privilege of using the platform.

2. MER

CMOAS is a great metric for tracking the impact of ad-attributed revenue however, it fails to see the entire picture of the marketing landscape.

In some cases, Paid Media encompasses the vast bulk of sales, however in the majority of cases there is some sort of equilibrium between organic sales and paid sales. Also, not all campaigns are created equal and fulfill different objectives. It would be silly to compare the performance of an awareness generation campaign apples to apples with a re-marketing campaign.

Marketing-Efficiency-Ratio

In order to diagnose the health of an entire advertising apparatus, it is important to zoom out and look at the system as a whole. This is where MER comes in. This is total revenues coming in across all channels and organic (usually measured at the eCommerce platform level if available) over the total ad spend across all channels.

3. Profit Growth

Although profitability has become increasingly important, it is equally important to keep scale in mind when measuring business performance. Top line revenue growth is a good indicator of overall growth in the business. However, it is good to double check profit growth year over year to ensure the volume has scaled efficiently.

In a perfect world, the two should scale together in parallel however marketing is never so simple. Different campaigns plateau at different points due to a multitude of factors.

Profit Growth is a pretty simple metric to calculate. How much profit did you make last period vs. how much did you make this period?

eCommerce-Profit-Growth

Much like CMOAS, this is all about taking landing costs, advertising costs, and returns/rebates into account. In a healthy scenario, this should scale along with revenue growth. However, advertising costs can easily slip into the realm of diminishing returns. Aligning goals against profit growth ensures that not only can a business scale, but it can scale efficiently and effectively.



The never-ending quest for better metrics in digital advertising has brought us to a whole new story. We've shifted our focus from relying solely on ROAS to embracing a profit-centric approach. And let me tell you, the new big three of digital advertising metrics—CMOAS, MER, and Profit Growth—paints a complete picture of your business's advertising performance and its impact.

CMOAS goes above and beyond ROAS by considering those sneaky variable costs and gives you a more accurate measure of your advertising's impact.

MER steps back and evaluates the overall health of your advertising machine by looking at total revenues across all channels.

Profit Growth aligns your goals with smart and effective scaling. By embracing these metrics, businesses can confidently navigate the ever-changing landscape of digital advertising and make savvy decisions to drive success and sustainable growth.

Nevin Zavell

Digital marketer with 4 years of experience. Managed and assisted with work for accounts covering a range of industries from high speed, high growth sectors to established brands in defense, automotive, and telecommunications sectors. Focusing now on driving innovative eCommerce solutions for brands through multiple channels to achieve higher revenues at lower costs.

Latest Articles

Mastering AI Overview SEO: 7 Strategies for Success

Mastering AI Overview SEO: 7 Strategies for Success

Discover how to optimize for Google AI Overviews with 7 key strategies. Learn about potential impacts on SEO, and new opportunities for eCo...

Creative Marketing: Cultivating a Loyal Brand Following

Creative Marketing: Cultivating a Loyal Brand Following

A strong creative marketing strategy is more important now than ever before. Creative remains the one constant you can control in your camp...

Customer-Centric Marketing: Aligning Throughout Their Journey

Customer-Centric Marketing: Aligning Throughout Their Journey

Learn about a brief history of how the past few year's economic conditions impacted eCommerce brands, and how Finch is using the Customer J...