What is the difference between ROAS, MER, CAC and contribution margin?

They answer different questions. ROAS asks how much attributed revenue one campaign returned per dollar. MER asks how much total revenue the business made per dollar of total marketing. CAC asks what a new customer cost. Contribution margin asks whether anything is left after the variable costs and the ads are paid.

Metric Formula Level Answers
ROAS Attributed conversion value / ad spend Campaign or channel Where to shift budget within a platform
MER (marketing efficiency ratio) Total revenue / total marketing spend Whole business Is growth getting cheaper or more expensive overall
CAC Acquisition spend / new customers Blended or channel What a new customer costs
Contribution margin after ads Revenue minus variable costs minus ad spend Whole business or cohort Did the spend make money

Google defines target ROAS as “the average conversion value (for example, revenue) you’d like to get for each dollar you spend on ads,” and shows it as a percentage: $5 in sales divided by $1 in spend is 500% (Google Ads Help). A ROAS of 5.0 and a tROAS of 500% are the same thing.

How do you calculate break-even ROAS from gross margin?

Break-even ROAS is 1 divided by your contribution margin percentage before ad spend. Gross margin alone is not enough: subtract every cost that scales with an order, not only the product cost.

Break-even ROAS = 1 / (contribution margin before ads / revenue)

Target ROAS for a profit goal = 1 / (contribution margin % minus target profit %)

Worked example. These are hypothetical round numbers chosen to show the arithmetic, not a benchmark:

Line Per order
Average order value $80.00
Product cost $28.00
Shipping and packaging $8.00
Payment fees $2.40
Returns and refunds allowance $3.60
Contribution before ads $38.00 (47.5%)
  • Break-even ROAS: 1 / 0.475 = 2.11, or 211% in Google’s tROAS terms.
  • If you want 15% of revenue left as profit after ads: 1 / (0.475 minus 0.15) = 1 / 0.325 = 3.08, or 308%.

At a ROAS of 2.11, an $80 order carries $37.91 of ad cost and leaves roughly nothing. At 3.08, ad cost is about $26 and $12 (15%) remains. If the first order is only part of a customer’s value, the break-even can go lower, but only if you have measured repeat purchases. For subscriptions, use cohort payback instead; see subscription CAC payback.

When does ROAS mislead?

ROAS misleads whenever the numerator is not money the ads actually caused. The common cases:

  • It is revenue, not margin. A 4.0 ROAS on a 20% margin product loses money; a 2.5 ROAS on a 60% margin product is healthy. Always compare against your break-even.
  • The attribution window counts it. Google Ads’ default click-through conversion window is 30 days, and the view-through default is 1 day (conversion windows). Data-driven attribution is the default model for most conversion actions (attribution models). Different settings produce different ROAS on the same sales.
  • Platforms overlap. Google and Meta can each claim the same order. Summed platform revenue regularly exceeds real revenue. Our guide on why GA4 and ad platforms disagree covers the mechanics.
  • Returning customers inflate it. Retargeting and brand search capture people who were already buying.
  • Cutting spend raises it. The cheapest conversions come first. A rising ROAS at falling spend may mean you are giving up profitable volume.

What is MER, and when does it mislead?

MER is total revenue divided by total marketing spend, with no attribution involved. That makes it hard to game and easy to reconcile with your books. It is the right top-line health check.

MER misleads in three ways:

  1. It cannot tell you which channel works. A strong channel can hide a weak one.
  2. Non-paid growth flatters it. A seasonal peak, a press mention or a price increase raises MER without any change in ad performance.
  3. It mixes new and returning revenue. A business with a large repeat base can show a strong MER while paid acquisition of new customers is unprofitable. A useful variant is new-customer MER: first-order revenue from new customers divided by acquisition spend.

Is CAC a better number than ROAS?

CAC is better for deciding how many customers you can afford, and worse for judging which customers you are getting. It counts heads, not value. A campaign with a low CAC that brings in small, one-time buyers can be worse than one with a higher CAC that brings in repeat buyers.

Keep two versions. Blended CAC is all marketing spend divided by all new customers in the period. Paid CAC is paid spend divided by customers the platforms attribute. When the gap between them widens, platforms are probably claiming customers who would have arrived anyway. Pair CAC with first-order contribution margin, so you know what each new customer leaves after their first purchase.

Why is contribution margin the number to run on?

Contribution margin after ad spend is the only one of the four that is denominated in profit. It is what pays salaries and overhead. Using the hypothetical example above: 1,000 orders at $80 is $80,000 of revenue and $38,000 of contribution before ads. Spend $30,000 on ads and you keep $8,000. Spend $40,000 and you lose $2,000, even though every campaign might still report a ROAS above 2.0.

The practical point: total contribution often peaks at a ROAS well below the highest one you can reach, because more volume at a thinner margin can add more dollars than less volume at a fat one. The ratio is a steering tool; the dollars are the goal.

Blended or channel: which level should you manage?

Manage the budget at the blended level and the bids at the channel level. Each metric belongs to a level:

Metric Use it to decide Misleads when
Platform ROAS / tROAS Bids, campaign and creative budget inside one platform Platforms overlap; view-through credit; revenue not margin
Blended MER Whether total spend is growing efficiently Organic or seasonal swings; repeat revenue dominates
Paid CAC Cost of customers a channel claims Platforms claim customers who came anyway
Blended CAC How many new customers you can afford Customer value varies widely
Contribution margin after ads Whether to raise or cut total budget Measured too early for repeat-purchase businesses

How should you set this up in practice?

  1. Compute contribution margin before ads per order, including fulfillment, payment fees and returns.
  2. Derive break-even ROAS and a target ROAS from it, using the formulas above. Set a floor below which spend pauses.
  3. Make conversion values reflect business value. Google notes value-based bidding can use “real economic values, like revenue or proxy values, like a lead score” (Google Ads Help). If margins differ by product, send margin-weighted values; see value-based bidding.
  4. Read weekly: platform ROAS by campaign, blended MER, new-customer MER, blended CAC.
  5. Read monthly: contribution margin after ads, by cohort if customers buy more than once.
  6. Test causation: run a holdout before large budget changes. Attribution shows who was credited, not what the ads caused; see incrementality testing.

How MSG approaches this

We start by agreeing the definitions in writing: what counts as revenue, which costs come out of contribution margin, and where each number is sourced. Every channel gets a ROAS target and a floor derived from your margin, and budgets are approved per campaign and per traffic source. We report the business, not the platform, so weekly reviews show blended efficiency alongside platform numbers, and every read ends in keep, change, scale or stop. See our measurement service and media buying service.

Sources

  1. Google Ads Help: About Target ROAS bidding
  2. Google Ads Help: About Smart Bidding using value-based bidding for Search and Shopping
  3. Google Ads Help: About conversion windows
  4. Google Ads Help: About attribution models

Platform features and policies change. This guide reflects the sources above as of October 28, 2026.