WHAT IS THE MARKETING EFFICIENCY RATIO AND WHY SHOULD YOU USE IT?

There is a never-ending stream of acronyms in digital marketing: SEO, PPC, CPM, ROAS, and now let me introduce to you another one. MER. What is MER? The marketing efficiency ratio is another way to calculate the overall value of ad spend relative to overall revenue.

WHAT IS MARKETING EFFICIENCY RATIO (MER)?

The simplest way to think about MER is total revenue/total paid ad spend from all channels. This is a more holistic way of viewing paid advertising’s impact on revenue rather than channel-by channel profitability. This allows for a more high level analysis of ad spend as a larger part of the marketing puzzle rather than narrowly focusing on the ROAS of individual ads (or panicking when ROAS drops from 4.08 to 4.00).

WHEN TO USE MER INSTEAD OF ROAS

The weeds are useful, but sometimes it pays to look at the forest. The thing about paid marketing, aka ads, is that they don’t operate in a vacuum, and looking at ROAS negates the interconnected nature of acquisition. Let’s take a real example from one of our clients.

Client X is running PPC [for both brand and services], as well as radio ads in their major metro market, and rewriting the copy on their website on a rolling basis. They get web leads, phone calls, and newsletter subscribers, though only new membership enrollments count as conversions. When calculating ROAS, if a user heard a radio ad, searched and clicked through to PPC, but ultimately subscribed to the newsletter and converted as a member a month later, that conversion will never be attributed to either paid channel even though they were both directly responsible for getting this user into the funnel.

Using the marketing efficiency ratio, these conversions will still be accounted for as attributable in some way to paid, even as they roll out of the direct attribution window month-to-month. Using MER to calculate the vale of paid to revenue is particularly valuable if you or a client is running brand-building and awareness, though not necessarily conversion-focused, ads. Attributing specific channel performance still matters, but so does evaluating the overall impact of how each channel works together to scale a business. MER provides that insight, where ROAS does not.

Especially with the announcement in summer 2020 on new Facebook data restrictions on user data and lookback windows for iOs 14 users, ROAS will be an increasingly elusive number with an incomplete data set. With an eye on MER, it’s easier to assess the overall impact of paid as a partner to organic channels, PR effort, conversion optimization, rather than paid a a totally independent channel.

Have questions about using the marketing efficiency ratio or running paid ads?