What Is the Marketing Efficiency Ratio?
Digital marketing has been a game-changer. With the global digital population reaching five billion individuals, it is often the most scalable marketing channel. Unfortunately, many entrepreneurs and executives don’t know how to measure the success of their efforts.
Experts all have their favorite marketing metrics, including return on ad spend (ROAS), cost per conversion (CPC), and customer acquisition cost (CPC). However, we often overlook one critical key performance indicator: the marketing efficiency ratio (MER). How can you use MER to transform your company? Let’s find out…
MER the Marketing Definition
What is the marketing efficiency ratio, exactly? MER measures every dollar you spend against the revenue it provides.
To compute your MER, divide your revenue by your total ad spend. For instance, a $20,000 sale for a $5,000 spend equals an MER of 4.0.
MER is a tool that measures marketing efforts individually and collectively, giving them a better view of the overall value of their campaigns. We recommend tracking MER because it prevents you from making rash decisions.
Sometimes, when your ROAS drops, you quickly react and stop a campaign. However, it may simply indicate that your budget is too low or your product’s seasonality affects revenues.
For example, creating SEO-driven content may not seem financially rewarding because of upfront costs. However, such content can move buyers through your funnels even years after publishing them. MER can help you monitor these factors.
MER: A Brief History
Before the digital era, marketers used MER to gauge direct response to TV ad efforts. It measured an infomercial’s overall success rate during a media buy. Generally, the higher the MER, the better for the advertiser.
Like any campaign today, many factors affected the MER of yesteryear, like media buy costs, time slots, and the product for sale. Also, as modern advertisers do, experts in the past tested variations to achieve the highest possible MER.
Advantages of Using MER
MER is an overarching metric that provides several benefits to tracking what is working.
MER — also called blended ROAS — gauges all marketing platforms. This feature provides decision-makers with a holistic overview of all advertising efforts, preventing them from getting stuck in the weeds at a micro-level.
Individual campaign ROAS can help you determine how to run winning campaigns, but it’s also ideal to zoom out to a business level. Overthinking ROAS sometimes panics managers because they instantly think individual tactics aren’t working. This can lead to a Yo-Yo effect where you make rash decisions without seeing the bigger lift of your combined campaigns. In today’s fragmented media landscape, that big picture view across (paid media, SEO, PR, social, and affiliate) is critical.
When you use multiple platforms for your online marketing efforts, like Google, Facebook, Instagram, Digital Radio, and TikTok we highly recommend using MER. MER is ideal for that higher-level spend analysis and maximizing your long-term ROI.
TV, radio, Out of home, and print ads can be a challenge for marketers to track results on a shorter cadence. With online channels, you can check results faster and easier, and this lets you make targeting, design, or spending changes in faster cycles saving money and time on what is not working.
MER is a metric you need in your modern marketing mix. Knowing your current math of marketing to know if those Facebook ads are bringing in new customers, you can review if you’re operating at your MER goal. Or are they unprofitable and need to be trimmed back or stopped?
Planning Future Campaigns
With MER on your side, you can evaluate available data and determine how best to hit your business targets. For instance, if the CEO announces a new revenue goal for the year, you can take your current MER to decide how much incremental funding you need to support the new revenue target.
Remember, this is not a metric to guide your media-buying decisions at a campaign level; instead, it is best used to understand your costs in relation to your potential revenues.
Achieve Your Marketing Targets Now
Many business owners and executives wonder: What is the marketing efficiency ratio? This tool provides companies with a holistic view of their marketing effectiveness. It can help you track your success faster and advocate for future campaigns.
Need help with your Math of Marketing? Get in touch with Ben now to realign your marketing mix and scale profitably.
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