Marketing Efficiency Ratio (MER) in Ecommerce
Marketing Efficiency Ratio (MER), also known as Media Efficiency Ratio and for a little extra confusion ‘blended ROAS’, helps assess the overall efficiency of marketing spend in driving revenue. Unlike granular metrics like standard ROAS (Return On Ad Spend), which evaluate individual campaigns, MER provides a broader view of the collective impact of all marketing investments on revenue.
MER vs. ROAS: Understanding the Difference
While Marketing Efficiency Ratio and ROAS are similar in that they both measure the effectiveness of marketing spend, the key difference lies in their granularity:
- ROAS focuses on the revenue generated by a specific advertising campaign or channel, divided by the cost of that particular activity.
- MER looks at the total revenue generated by all marketing efforts divided by the total marketing spend across all channels and campaigns.
Calculation Comparison
ROAS | Revenue from a specific campaign ÷ Cost of that campaign
MER | Total revenue from all marketing efforts ÷ Total marketing spend
Why Use MER?
MER serves as a top-level health metric, offering a quick snapshot of overall marketing efficiency. By setting and tracking a target MER, businesses can gauge whether they are on course to achieve their revenue goals and adjust their strategies accordingly. Marketing Efficiency Ratio complements more granular metrics, providing context for individual campaign performances within the broader marketing landscape.
How to Calculate MER
To calculate MER:
MER=Total Revenue/Total Marketing Spend
Example:
If a business generates $100,000 in revenue and spends $25,000 on marketing:
MER=$100,000/$25,000=4
This means that for every dollar spent on marketing, $4 in revenue is generated.
Setting Marketing Goals with MER
MER can be instrumental in setting and achieving marketing goals. Suppose a business aims for $80,000 in revenue next month with an average order value (AOV) of $160.
1. Determine the Number of Orders Needed:
2. Estimate Total Ad Spend:
Assuming a target cost per acquisition (CPA) of $25:
Total Ad Spend=Number of Orders×CPA=500×$25=$12,500
3. Calculate Target MER:
A target MER of 6.4 indicates an aim to generate $6.40 in revenue for every dollar spent on marketing.
Note: MER focuses on revenue generated versus marketing spend and does not account for returns or fulfillment costs, which can affect net profitability.
Where to Find Marketing Efficiency Ratio
Google Analytics 4 (GA4)
Unfortunately, MER is not a standard metric in GA4. To calculate it, you need to:
- Gather Data:
- Total Revenue: Obtain this figure from your ecommerce platform.
- Total Marketing Spend: Collect this from ad platforms or financial reports.
- Calculate Manually:
- Use a spreadsheet to divide total revenue by total marketing spend.
Incendium
In Incendium, MER is available in the ecommerce report, providing a convenient way to monitor this metric without manual calculations.
Common Pitfalls When Using Marketing Efficiency Ratio - and How to Avoid Them
Misalignment with Business Goals
Focusing solely on improving MER might lead to cutting back on marketing spend, potentially harming long-term growth. There are two main ways to avoid this:
- Balance MER with Growth Objectives: Use MER alongside metrics like Customer Acquisition Cost (CAC) and Lifetime Value (LTV) to ensure sustainable growth.
- Strategic Investment: Recognize that sometimes increasing marketing spend can lead to higher overall revenue, even if MER temporarily decreases.
Overlooking Discounts and Promotions
Heavy reliance on discounts can inflate revenue figures, making MER appear healthy while actual profit margins suffer.
- Monitor Profit Margins: Use MER in conjunction with metrics like Contribution Margin to get a true picture of profitability.
- Assess Promotion Impact: Evaluate how discounts affect both MER and net profits to make informed decisions.
Marketing Efficiency Ratio Usage and Optimization Tips
- Assess Overall Marketing Performance: A declining MER may indicate that marketing spend is increasing faster than revenue, signaling the need to refine campaigns.
- Focus on High-Performing Campaigns: Allocate more budget to campaigns with better performance and reduce spend on underperforming ones.
- Enhance Website Conversion Rate: Improving site conversion rates can boost revenue without increasing ad spend, positively impacting MER.
- Leverage Customer Retention Strategies:some text
- Email Marketing: Nurture existing customers to encourage repeat purchases.
- Loyalty Programs: Implement programs that incentivize repeat business.
- Utilize Cost-Effective Channels: Explore organic marketing strategies like SEO and content marketing to drive revenue without additional marketing spend.
Marketing Efficiency Ratio provides a valuable top-level view of marketing efficiency, offering insights into how well marketing investments are translating into revenue. However, to effectively improve MER, it should be used alongside more granular metrics. By understanding and optimizing both high-level and detailed performance indicators, businesses can make informed decisions that drive sustainable growth and profitability.
