If you're an ecommerce business, then you know that marketing is essential to your success. But what if you could make your marketing efforts more efficient? In other words: generate more revenue while keeping your ad budget the same?
That's where marketing efficiency ratio comes in. MER is a marketing metric that helps you measure and track the effectiveness of your marketing campaigns. By calculating MER, you can identify areas where your marketing dollars are being best spent and make changes accordingly.
In this article, we'll explain what marketing efficiency ratio is, why you should track it, and how to calculate it. We'll also discuss the benefits of tracking MER and how to improve your marketing efficiency ratio. So read on to learn more!
What is marketing efficiency ratio (MER)?
Marketing efficiency ratio is a key metric that measures marketing effectiveness and efficiency. We know that customers typically interact with more than one ad campaign, medium, or channel before buying. MER takes into account the value generated from all parts of your marketing strategy.
MER can be calculated by dividing marketing expenses by marketing revenue, which allows you to see how well your marketing channels are increasing sales and generating profits. For ecommerce brands, MER is an important indicator of marketing effectiveness and can be used to inform marketing strategy, assess marketing campaigns, and track marketing ROI.
Why should you track MER?
For ecommerce brands, marketing efficiency ratio is a critical indicator of marketing effectiveness and ROI. By tracking MER over time, you can gain valuable insights into your marketing strategy and make informed decisions about how to improve marketing performance.
MER allows you to improve your marketing ROI and optimize marketing spend. With MER, you can identify underperforming marketing channels and campaigns and allocate marketing resources more strategically. Equally, you can identify marketing best practices and strategies that are driving strong results and start incorporating these into your marketing plan.
If you want to increase marketing ROI and maximize marketing performance, it is essential to track marketing efficiency ratio and use your insights to inform marketing strategy. With the right techniques, you can take control of your marketing assets and drive better results for your ecommerce brand.
MER vs. ROAS
ROAS (return on advertising spend) is a marketing performance metric that calculates how much revenue your ad campaigns generate.
ROAS = total ad spend/ total revenue attributed to those ads
MER is sometimes referred to as ecosystem ROAS because it calculates the return on your marketing activities but takes into account your entire marketing ecosystem rather than the ad dollars spent on a specific marketing campaign or individual ad.
Both metrics measure marketing effectiveness and efficiency, and both can be used to inform marketing strategy, assess marketing campaigns, and track marketing ROI. However, MER provides a more comprehensive overview of marketing performance, whereas ROAS gives you an in-depth understanding of how different campaigns are performing.
When to use MER?
When you want to measure the overall efficiency of your marketing efforts.
When to use ROAS?
When you want to analyze a specific marketing campaign or compare the profitability of different ad campaigns.
Marketing efficiency ratio vs. Media efficiency ratio
Media efficiency ratio measures the efficiency of your media spend. To calculate media efficiency ratio, divide the spend on media (for example, paying for TV spots or a radio ad) by the revenue from the total sales revenue generated from those ads.
As with ROAS, media efficiency ratio gives you an insight into how a specific part of your marketing is performing. In contrast, MER lets you see the overall impact of your marketing spend. By tracking both marketing and media efficiency ratios, you can get a more comprehensive picture of how marketing is impacting your bottom line.
How to calculate MER
To calculate your marketing efficiency ratio, you will need to gather data on marketing expenses and overall revenue from various marketing channels. Some of the most common marketing expense metrics include total spend on marketing (both offline and digital marketing), marketing staff costs, and marketing service fees. Revenue metrics can include website traffic and conversions, sales or leads generated from marketing campaigns, and marketing-generated revenue.
Once you have collected this data, you can use it to calculate your marketing efficiency ratio as follows:
Total marketing expenses / total marketing revenue = marketing efficiency ratio
For example, if you spent $10,000 on marketing activities over a given period and generated $25,000 in revenue during that same time period, your marketing efficiency ratio would be 0.4 ($10,000 / $25,000).
Or, if you spent $10,000 on marketing activities over a given period and generated $100,000 in revenue during that same time period, your marketing efficiency ratio would be 0.1 ($10,000 / $100,000).
There are a number of strategies that ecommerce brands can use to improve marketing efficiency and increase marketing ROI. These include A/B testing marketing campaigns, optimizing website design to improve conversions, and leveraging marketing automation tools to streamline marketing operations. By tracking and analyzing your marketing metrics on an ongoing basis, you can identify areas for improvement and make data-driven decisions to optimize your marketing strategy and maximize results.
What is a good MER?
There is no one "good" marketing efficiency ratio, as this will depend on a number of factors, including your business model, marketing goals, and the types of marketing campaigns you are running.
The lower your MER, the more efficient your marketing. For example, an MER of 0,5 means that for every dollar spent on marketing, you get $2 back in revenue. An MER of 0.05 means you generate $20 for every marketing dollar spent.
If your ratio is more than one, you're spending more on marketing than you're getting back in revenue. That means, in general, an MER of less than one is on the profitable side.
However, that might not always be the case. Let's say you run a small business with a niche health tea that has an extremely high customer lifetime value. You have to advertise a lot when you first set up the business, but then once you've generated new customers, they are very loyal and buy tea from you every month without you really having to market further.
We can imagine we spent $100,000 on marketing in the first year and generated $80,000 in revenue. That's a high MER: 1.25. But, in the second, third, and fourth years, we only spent $1,000 on marketing and generated the same revenue each year – which brings our MER down to 0.0125. In this case, maintaining a high MER for the first year was ultimately a good decision for long-term growth.
If you're looking to improve your marketing efficiency ratio and maximize ROI in your ecommerce marketing efforts, there are different strategies that you can use:
Personalizing your marketing and targeting high-value customers with specific advertising campaigns
Creating valuable content marketing initiatives such as ebooks and webinars
Investing in marketing platforms or services that can help you track and optimize your marketing performance and ROI
SMS marketing is a highly cost-effective channel that can help you to generate revenue on a tight budget. Read 10 Reasons to Add SMS to Your Marketing Strategy
When analyzing your marketing efforts: start wide, then go narrow
Ultimately, the marketing efficiency ratio should be just one of many metrics that you track in order to achieve your marketing goals. Once you've used MER to get a holistic view and see the overall performance of your marketing activities, you'll want to drill down into more specific marketing metrics, such as return on ad spend (ROAS), website conversion rate, and average order value.
Tracking other marketing metrics, in addition to the marketing efficiency ratio, can help you identify marketing trends and opportunities for improvement and ensure that your marketing efforts are aligned with your business goals. With this data, you can make informed decisions about where to focus your marketing activities and how to optimize your marketing activities for maximum results. Read The Ecommerce Guide to Return on Ad Spend (ROAS).