Hi, my name is Rich, I’m the CEO and founder of ROAS media. Prior to starting ROAS Media in 2017, I spent 2 years working for Facebook on the mid-market eCom team, managing some of the largest spending eCom brands in Australia and New Zealand. I left Facebook in 2017 to start ROAS Media from the ground up. Currently, we’re one of Facebook’s largest independent media buying agencies with clients around the world and a portfolio spending 10’s of millions of dollars per year.
I’m hoping my background and experience here can help other founders in their scaling journeys and in this article we’re going to talk about one of the biggest topics in the market currently (the impact of the iOS14.5 updates).
Why the impacts of iOS14.5 are so important for founders to understand:
It’s been over a year since iOS14.5 was implemented and most founders are still confused about the impact and ensure on how they should analyze their data. The biggest hangup that I see most founders getting stuck with here is the inability to let go of the previous on-platform ROAS (return on ad spend) numbers that they were used to seeing in their ad accounts. If paid ads were working for you prior to the release of iOS14.5, you can be fairly confident they are still an effective medium for you today but this needs to be verified.
So, the big question is – how do you verify that your paid ads are still working for your business?
Tip 1: Understand your MER (Marketing Efficiency Ratio)
What is MER: Your marketing efficiency ratio (MER) is the total revenue divided by your total ad spend. EG) $500k in revenue per month with a total ad spend across channels of $100k, then you have a 5x MER.
The easiest thing for you to do right now in order to get a baseline read on the performance of your advertising results before and after the release of the iOS14.5 update would be to bust out the excel spreadsheet and look month-on-month at your MER over the last 24 months.
At this point, don’t focus on your on-platform ROAS – just look at the MER pattern over these 24 months.
In months where you scaled up or scaled down your ad spend across various channels, do you see your MER ratios staying fairly consistent? Analyzing these patterns will be part of your first steps to understanding the effectiveness of your advertising from a very high level. If you only look at your ROAS across various ad channels, you’re going to see that after the iOS14.5 updates, the reported ROAS drops significantly. This shouldn’t be a surprise given the high number of opt-outs for 3rd party tracking.
Tip 2: Determine The Right Source Of Truth
The reason why I’m specifically highlighting the importance of determining your ultimate source of truth is that we’re seeing brands in the market get badly burnt here when they get this wrong.
Example: One of the new brands we recently brought into our portfolio faced some serious issues with following the wrong source of truth before they joined us. In their peak season, they were spending usd$500k per month and using a 3rd party platform as their source of truth to determine their return on ad spend. They weren’t looking at their MER at all. This is one of the key things we highlighted to them in our audit before joining our portfolio. Over 3 months, they had spent more than $1.5m but suddenly cash flow became very tight within their business. If they had simply tracked their MER over this time, they would have seen a major discrepancy between the 3rd party reporting and the actual revenue to spend ratios which had dropped significantly over this time.
Your bank account/PnLs should be your ultimate source of truth – if you use MER as a simple gauge here, you won’t run into the issues above like this brand did before they joined us. It’s a very expensive exercise to get wrong so if there is only one thing you take away from this article, I’m hoping you start implementing this going forward.
Tip 3: Proceed With Caution (3rd Party Reporting)
If it’s not clear already from the story above, you need to be careful here. We’ve tested various 3rd party reporting tools over the last 12 months as our clients push to explore every possible angle here to give them an edge but as yet, we have not seen any success stories. This note isn’t to single out any one particular 3rd party tool but I would issue a word of caution for those thinking there is a magic piece of software out there in the market that has solved a multi-billion dollar challenge that all ad platforms are facing right now.
Tip 4: Implement Secondary KPI’s
One of the risks with only looking at MER numbers if you’re advertising across multiple channels is that you might be giving too much credit to one channel over another.
Solution: We’re advising our clients to take the last 12-month average for on-platform reporting to use this as the new KPI for that particular ad platform.
An example of how the above solution works would look like this:
- Determine the right MER where your business is comfortable and profitable, this becomes your main KPI for your internal/external marketing team (eg 4x MER, for every dollar you spend on marketing, you want to see $4 back in revenue)
- Analyze the on-platform ROAS of all channels, eg on Facebook, prior to iOS14.5 updates, maybe you were hitting a 3-4x roas, and now, maybe you’re seeing a 2x ROAS.
- If you can see that as you increase spending or decrease spending on your Facebook ads, your MER remains consistent around the 4x mark and your on-platform metrics also remain consistent around the 2x ROAS mark, then set your MER target at 4x with a requirement that your Facebook ads need to hit a minimum of 2x ROAS.
- This prevents over-spending in any of your advertising channels and keeps things in check.
Tip 5: Know Your Numbers
The steps above should not be a one-off calculation – in the ideal scenario, you should set up your reporting to track this on a daily basis across the business and all of your ad channels. The way we currently do this for all of our clients is to use Supermetrics to automatically pull ad spend/ROAS/ad revenue as well as total revenue and track it daily.
Tip 6: Analyze Your Competitor’s Stats
This is particularly for the new founders that aren’t sure what KPIs they should be setting for their MER targets. If you do some digging through listed competitors on their PnLs this is a good place to start – just remember they could be playing a different game to you if they’ve received massive amounts of investor funding.
Some of our clients have managed to get visibility on prospectuses from their competitors looking to sell in the market while they’re still in the early startup phase and this will give you a much clearer idea of what you’re up against and the norms.
As a general rule of thumb, from what we’ve seen at ROAS Media over the last 5 years – most clients in the eCommerce space are setting their MER targets at 3-4x MER (targeting aggressive growth).
At the end of the day, your MER targets need to be right for you so that you’re making the profit margins needed in order to continue scaling profitably.
Tip 7: Stress Test & Evaluate
If you’re following the steps above, you can easily increase or decrease your spending in any of your advertising channels and track the impact on your MER and on-platform ROAS to determine the next steps accordingly.
Tip 8: Evaluate Your Internal/External Team
This one is particularly for the founders, as it’s been over a year now since the release of the iOS14.5 update, your internal team or external marketing partners should be able to clearly outline how they see this has impacted your business, how they are pivoting and whether or not this is headed in the right direction. You wouldn’t be alone if you’re struggling to get the answers you’d like here as there is still so much confusion in the marketplace around this topic.
How Can We Help:
- If you need a deeper walkthrough on reviewing the topics above, our team would be happy to provide an in-depth audit and consultation
- Setting up your tracking and dashboards to follow the strategies outlined in this article
- Market insights specific to your vertical – discussing how other brands have managed to scale successfully over the last 12 months
- One of the core services we offer is a custom growth model simulator. Once you’ve mastered the basics above in this article, the next steps are to identify which key metrics within your paid ads strategies will need to be further unlocked in order to help you scale profitably. With 10’s of millions a year in ad spend data, we can provide a comprehensive outlook on the core areas you’ll need to focus on to help unlock further scaling.
I hope you’ve found the above useful and best of luck in your scaling journeys!