Understanding Marketing Effiency Ratio

July 28, 2023

Yay! Another metric and another acronym to add to our Marketing toolbox. But before you roll your eyes, let's talk about the Marketing Efficiency Ratio (MER) and why it's a game-changer for your e-commerce business. In this guide, we’ll cover what the Marketing Efficiency Ratio is, why your e-commerce business should use it, the key benefits it offers, and who can benefit the most from adding it to your metric stack.

What is the Marketing Efficiency Ratio (MER)?

At its core, the Marketing Efficiency Ratio is a metric that measures the efficiency of your ad spend in relation to the total revenue your business generates. Expressed as a ratio of total revenue to total ad spend, the MER provides valuable insights into how effectively your marketing spend is turning into revenue. The metric is also commonly referred to as ‘Total ROAS’.

MER = Total Revenue / Total Spend

Why should your Ecommerce business use MER?

We all know that attributing sales to specific marketing channels can be a daunting task and sometimes impossible! While it's important to analyse metrics like cost per click (CPC) and click-through rates (CTR) for individual channels, they don't provide a comprehensive view of your overall business performance. This is where the Marketing Efficiency Ratio comes in.

MER gives you a macro perspective on how efficiently your ad spend is contributing to your total revenue. By considering the entire customer journey and the cumulative impact of your marketing efforts, MER provides a clearer picture of your marketing effectiveness and helps you make data-driven decisions.

The Key Benefits of Using MER

1. Holistic Channel Performance Assessment

MER allows you to evaluate the performance of your marketing channels collectively. Instead of solely focusing on individual channel metrics, you gain insights into the overall efficiency of your advertising investments. This broader perspective helps you optimise your marketing mix and allocate your budget more effectively.

2. Understanding the Impact of Top-of-Funnel Channels

For e-commerce businesses running both top-of-funnel and bottom-of-funnel activity, understanding the contribution of each stage is crucial. MER helps you assess the impact of your top-of-funnel channels in driving revenue. It reveals how effectively your initial brand exposure and awareness campaigns are translating into tangible results down the line. This is most evident when pausing entire channels, or launching completely new ones.

3. Ongoing Performance Measurement

MER is an excellent tool for monitoring your marketing performance over time. By tracking your MER regularly, you can identify trends, spot changes in efficiency, and measure the effectiveness of specific changes you’ve made. This empowers you to refine your strategies and tactics to improve results. Some questions you should consider are:

  • What happens to MER when I run a specific promo - Does my spend get more efficient or less?
  • What happens to MER when stock is getting low, or when stock is sufficient?
  • What happens to MER throughout the year - through seasonal changes?
  • What is my MER at a higher or lower amount of spend?

Getting an understanding of these will help you plan how much more you can spend to ensure you are scaling efficiency.

What About My Other Metrics?

The Marketing Efficiency Ratio doesn’t replace ROAS or CPA, it complements them and should be used in conjunction with these other metrics to give a better view of the full picture.

Who is MER Best Suited For?

The Marketing Efficiency Ratio is particularly valuable for e-commerce businesses that operate multiple marketing channels across the top and bottom of the funnel. It's well-suited for companies that want a comprehensive view of their marketing performance and strive to optimise their ad spend to maximise revenue. Whether you're a small startup or an established business, implementing MER doesn’t cost a cent to calculate, it’s an easy formula that can help you make informed decisions and drive growth.

The Fine Print

Attributing sales to specific marketing channels is still very complex, MER is a metric to help gauge the performance, but it does not solve attribution. For Businesses that are running large-scale brand awareness campaigns, you would also be best positioned to utilise a brand tracking solution, like Tracksuit, to help measure brand sentiment.

Interested in Learning More?

In the world of e-commerce, understanding the efficiency of your marketing efforts is a must. The Marketing Efficiency Ratio (MER) is a powerful metric that goes beyond individual channel metrics and offers a more holistic view of your marketing ad spend. By leveraging MER, you can optimise your marketing mix, gauge the impact of channels, measure performance over time, and make data-driven decisions to improve performance. 

So, reach out to the Reason team, if you want to know more about it.

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Written by the team at Reason.

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