13/03/2023 • Andrew Lowdon
Marketing Efficiency Ratio
Insights Article
What is the Marketing Efficiency Ratio and how will it help to scale ad spend and revenue?
The Marketing Efficiency Ratio (MER) is an overall measure of a business's digital marketing efforts. It’s a simple metric calculated by dividing total revenue by total spend, which gives you a clear picture of how much you’re spending on marketing compared to how much you’re making in return. MER can also be known as blended ROAS and can measure just the impact of ad spend or total spend including agency fees & employee salaries if desired to give the total picture on the impact of marketing campaigns. By understanding this ratio, you can make more strategic decisions about how to allocate your marketing budget and scale up your campaigns.
How can it help me to scale my marketing activity?
Instead of separating out channels and looking at them individually, try to get a “big picture” view of your marketing efforts. This can help you see how different channels are working together and how they’re contributing to your overall success. For example, a PPC campaign might introduce the brand to consumers that return via organic or social traffic and transactions, which can be helpful to understand when planning future campaigns.
To get the most out of your marketing efforts, it’s important to consider multi-channel data and look at assisted conversions. This can help you understand how different channels are working together to drive results and where you might need to make changes to optimise your campaigns
In short, MER is a valuable tool for understanding and planning your marketing campaigns. By using data to get a big picture view of your efforts and allow you to make more strategic decisions about how to allocate your budget and scale up your campaigns for maximum success. It helps you to see that scaling campaigns isn’t just about increasing spend and focusing on improving the Conversion Rate of key landing pages that will be used during an integrated marketing campaign will help to drive additional Revenue and increase the value of advertising spend.
What are the risks of using MER
One risk of MER as with any metric is an over reliance on what it tells you. While it’s a useful metric, it’s just one piece of the puzzle. Other factors, such as brand awareness, customer satisfaction, and customer retention, should also be considered when evaluating the success of a marketing campaign.
Another risk is the potential for false positives. The MER is calculated by dividing total revenue by total spend. If revenue goes up but spend remains the same, the MER will appear to be improving. However, this could be due to factors outside of the marketing campaign, such as changes in the market or competition. It’s important to consider other metrics, such as customer acquisition cost, to get a more complete picture of campaign performance. Using MER alongside other metrics will provide an enhanced view on marketing performance.
MER in practice
At 43 Clicks North, we use MER on our ecommerce campaigns. The main benefit we take from this allows us to see the impact on Revenue when we increase spend to scale up campaign performance. When you scale up spend in a channel, often you will see a drop in performance of platform specific metrics with Customer Acquisition Cost (CAC) increasing and ROAS dropping. MER allows you to look past this and see the wider impact on business Revenue as a whole.
We used this with Stone Refurb to push past tight channel performance targets and scale ad spend and overall revenue by 150% whilst seeing a less than 4% decrease in MER. We also increased Sales by 115% whilst seeing less than 0.2% increase in CAC. This shows an incredibly efficient scaling of revenue at levels where you would expect to have to pay more to acquire new customers.
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