At the core of all business metrics lies one universal truth: You are what you measure.
If you can’t measure it, you can’t improve it.
Many companies keep a close watch on a bunch of key performance indicators (KPIs) to drive growth — cost per acquisition (CPA), cost per lead (CPL), customer acquisition cost (CAC) or return on ad spend (ROAS) and profit on ad spend (POAS).
But if you’re looking for a metric that gives an overall picture of what you’ve actually achieved, marketing efficiency ratio (MER) is the answer.
In simple terms, marketing efficiency ratio helps you look at the bigger picture. It’s the overall money your company earns divided by the total money spent on ads across all marketing platforms.
MER lets you step back and see the holistic view so you can make smarter decisions before rushing to fix “problems” in your marketing plan.
What is Marketing Efficiency Ratio?
Marketing efficiency ratio measures the high-level success through total ad spend and total revenue: total sales revenue divided by total marketing spend (calculated during the same time period). It is also known as marketing efficiency rating or blended ROAS.
MER shows how much you’ve spent on paid media in total, and how much revenue you’ve generated.
In short, it helps you grasp the marketing efficiency required to achieve your target profitability.
How to Calculate MER?
Wondering how to calculate MER for 2023? Divide your total sales revenue by your marketing spend across all channels. Once you get the result, multiply it by 100 to express it as a percentage.
Marketing Efficiency Ratio (MER): Total revenue divided by total spend.
It signifies the overall performance of your marketing efforts.
MER = Total revenue / Total ad spend
For example,
Total Sales Revenue (2023) = £3,850,000 (£3.85 million)
Total Marketing Spend (2023) = £742,000
MER = 5.18, or 518%
Let’s get this straight: there’s no one-size-fits-all “good” MER.
A good MER benchmark depends on the specific industry type, but it is common to see a 3x MER labelled as “good”. In other words, MER is an individualised metric.
Why should you use MER and what are its benefits?
MER might sound similar to ROAS, but there’s a key difference.
Similar to ROAS, Marketing Efficiency Ratio (MER) is used to measure marketing effectiveness, using revenue as a key performance indicator. Both have their own importance in their own way.
ROAS zooms in on the revenue generated on a single campaign by taking into account what’s splurged on ads.
MER looks at the overall picture, factoring in all factors and platforms to gauge the total impact of paid media.
While ROAS helps identify your growth, MER measures the profitability through the efficiency of your processes.
Moreover, MER comes into focus for channels that are tough to attribute to revenue, such as dark social. Its impact can only be viewed from a wide lens.
How to Use Both ROAS and MER?
So how to best use ROAS and MER for your business? Here are three things you must keep in mind:
- Calculate marketing efficiency ratio to gauge the total efficiency of your marketing spends.
- Use ROAS to dissect precise marketing components and the profits made from particular ads and channels, but do not mix it up with the success of top-of-funnel activity.
- Evaluate both MER and ROAS together to measure overall performance while looking at specific performance of each ad or campaign.
By weaving together the precision of ROAS and panoramic insights of MER, you’ll sculpt a data-driven strategy that navigates both immediate and long-term victories.
Unlock the Power Of Success With ROAS and MER
Your brand can achieve success by carefully measuring both Return on Ad Spend (ROAS) and Marketing Expense Ratio (MER). These calculations will guide your business towards its best performance.
Strategic Insight: Measure ROAS to know the immediate impact of your ads and MER for a comprehensive overview of your entire marketing efforts.
Optimal Allocation: Use ROAS to make quick decisions about where to allocate your marketing resources, and use MER to make long-term strategic decisions.
Cross-Validation: Compare ROAS and MER results to validate your campaigns and identify areas for improvement.
Customer Journey: Evaluate ROAS to focus on individual campaigns and MER to look at the entire customer journey and how it is impacting your bottom line.
Efficiency Boost: ROAS can help you make quick adjustments to your campaigns, while MER can help you optimize your marketing efforts for long-term efficiency.
Platform Ease: ROAS is easy to calculate and understand, while MER can be more complex. Use ROAS for quick evaluations, and use MER for detailed insights.
Through its panoramic lens, MER takes a comprehensive view of paid media.
It not only helps businesses make better decisions and allocate resources more effectively but also gives businesses a competitive edge in the ever-changing digital landscape.
