Paid Traffic

Understanding Marketing Efficiency Ratio (MER): The Key to Smarter Marketing

Let’s face it, as marketers, we’re constantly asking ourselves the question, “Is this working?” It’s more important than ever to make sure our marketing dollars are impacting our bottom line. That’s where the Marketing Efficiency Ratio (MER) comes in.

Think of MER like your marketing team’s Grade Point Average – it shows how effectively your overall marketing efforts are driving revenue. Sure, it’s great to ace that one social media campaign, but how’s your whole marketing class doing?

So, What Exactly is MER?

MER is calculated by taking your total revenue and dividing it by your total marketing spend. Let’s say you made $200,000 in sales last month, and you spent $50,000 on marketing. Your MER would be 4 – meaning for every dollar you spent, you brought in four dollars in Revenue. Not too shabby!

In this post, I’ll break down:

  • MER vs. ROAS: What’s the difference?
  • How MER impacts your bottom line
  • Calculating your MER (and what it tells you)
  • Tips and tricks to boost that ratio

MER: Your Big-Picture Marketing Metric

Imagine if you only focused on the clicks and likes any single ad gets. That’s a lot like ROAS (Return on Ad Spend), a great metric for specific campaigns. MER takes a step back, zooming out to consider everything you invest in marketing – ads, content, even salaries. It answers the question: “Overall, how much bang am I getting for my marketing buck?”

MER vs. ROAS: Pros and Cons

MER• Shows the big picture of your marketing efficiency
• Aids budgeting
• Can be diluted by high-performing outliers
• Doesn’t isolate campaign performance
ROAS• Highly specific, great for campaign-level adjustments
• Directly ties expenditure to revenue, making it easier to measure direct impact
• Can miss how channels play together to win
• Might not account for long-term brand building or customer lifetime value
• Doesn’t factor in channel attribution

High MER? Good News!

A healthy MER means you’re squeezing the most out of your marketing spend. A low MER could mean you’re overspending or your efforts need some fine-tuning. MER is all about watching trends, giving you insights into both where to double down and what to rethink. It’s great for forecasting too; knowing your MER helps you estimate expected revenue based on future budgets.

Most importantly, MER keeps everyone focused squarely on driving profits – not just those vanity metrics like your ROAS on Brand campaigns.

The MER Calculation: Simple, Yet Powerful

  1. Pick a Timeframe: Monthly, quarterly, annually, whatever makes sense – Just keep it consistent and remember to factor in seasonality. An Ecommerce company wouldn’t compare Q1 results to Q4 results since that won’t give them directional data.
  2. Define Your Spend: Ads, content creation, team salaries, marketing tools, agency fees, freelancers… you get the picture.
  3. Divide and Conquer: Total revenue divided by total marketing spend within your timeframe is your MER.

Example Time! Let’s Say You’re an Ecommerce Shop:

  1. This month’s sales are $200,000.
  2. You spent $20,000 on ads, $4,000 on Conversion Rate Optimization Testing, $10,000 on marketing team salaries, $2,000 on various marketing tools, $2,000 on producing creative, and $2,000 on your marketing agency.
  3. Your MER this month is 5
    $200,000 / ( $20,000 + $4,000 + $10,000 + $2,000 + $2,000 + $2,000). 

Nice work!

What’s a “Good” MER?

Hate to break it to you, but there’s no magic number. Your perfect MER depends on your industry and goals. That said, always aim higher! What I always tell our clients is the best benchmarks are your own historical performance. Check out publicly traded companies’ financial statements as a rough benchmark, and remember, tracking your own MER over time is often the most telling. As an example, here is some data I pulled from the Netflix income statement:

Factors That Can Make or Break Your MER

  • Bad Targeting = Bad MER: Casting a wide net may seem tempting, but hitting the right people matters more. See my recent blog post about why segmentation matters.
  • Killer Content Wins: Boring ads? A leaky website funnel? Fix these, and your MER will thank you. Invest in conversion rate optimization. Doubling your conversion rate can reduce your marketing spend by half and produce the same revenue.
  • Pricing and the Product is Powerful: Even the best marketing can’t sell overpriced and/or bad products.
  • Market Mayhem: Sometimes, economic downturns or competitor moves throw a wrench in things.

MER Best Practices

  • Track Regularly: Don’t just calculate it once and forget it. What is your total MER this year, what was it last year? What is it on a monthly and quarterly basis? Did you improve Year over Year?
  • A/B Test for the Win: See what works, then do more of that.
  • Segment Your Audience: More relevant messages = higher conversions. Deliver the right message to the right person at the right time.
  • Data is Your Friend: Analytics platforms will be your MER sidekick.
  • Compare the right data! Remember to compare year over year data to account for seasonality. Using the Netflix example above again, in Q4 of 2023, Netflix had a MER of 9.64, down from 15.29 in Q3 of the same year, a 37% decrease QoQ, but when looking at this YoY, they actually improved their MER by 2% from 9.44 to 9.64.

MER Isn’t Perfect

Sometimes, a high MER can be deceptive if your overall revenue is low. Likewise, MER doesn’t tell you which specific tactics are winners. That’s why pairing MER with other metrics gives you the best intel.

Need Help Upping Your MER Game?

MER is one powerful tool in your marketing arsenal. It keeps you honest, guides smarter budgeting, and celebrates your overall marketing efficiency. If you haven’t explored your MER yet, give it a go!

At From the Future, we’re all about helping businesses nail their marketing efficiency. Drop us a line; we’d love to analyze your MER and help you make it shine.

Arad Lahiji

 | May 15 ,2024

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