In short: Marketing Efficiency Ratio (MER) is a way to see how well your marketing spend is turning into total revenue. It helps you understand the overall success of your marketing without getting lost in details.
Understanding Marketing Efficiency Ratio (MER)
Marketing Efficiency Ratio (MER) is a metric that shows how well your marketing is working as a whole. Instead of focusing on one specific campaign or channel, MER gives you a big-picture view of how much revenue your marketing spend is bringing in.
To calculate MER, divide your total revenue by your total marketing spend. The formula is:
MER = Total Revenue / Total Marketing Spend
For example, if you spent £50,000 on marketing and made £200,000 in revenue, your MER would be 4. This means that for every pound you spent, you made £4 back. The higher the MER, the more effective your marketing is.
What is Considered a Good or Bad MER?
What makes a good or bad MER depends on your industry and business goals. Here are some general guidelines:
E-commerce: A MER of 4-6 is usually good. This means you're getting £4 to £6 for every £1 spent on marketing. Some top e-commerce brands may get MERs of 7-10 or more, especially during big sales events.
Retail: For retail, a MER of 3-5 is seen as healthy. Retail businesses often have high costs, so they need a good return on their marketing spend.
Software as a Service (SaaS): A MER of 3-5 is generally good for SaaS companies. They usually focus on long-term customer value, so a slightly lower MER may be okay if they expect higher customer lifetime value.
B2B Services: For B2B services, a MER of 2-4 is acceptable, since they often have longer sales cycles and higher-value deals.
Hospitality: In the hospitality industry, a MER of 3-4 is good. Hotels and travel businesses also need to consider seasonal changes in their MER.
Why MER Matters
MER is important because it shows how well your overall marketing budget is being used. Unlike other metrics that focus on specific campaigns, MER helps you see how your marketing is working as a whole. This is especially helpful if you have a complex strategy involving multiple channels.
By tracking MER, you can:
See the big picture: MER helps you understand how well your entire marketing budget is performing.
Make decisions more easily: With just one number to look at, you can make faster decisions about scaling or changing your marketing.
Spot inefficiencies: A low MER could mean your marketing isn't working well, and you might need to look deeper into specific channels.
MER vs. ROAS: What's the Difference?
MER and ROAS (Return on Ad Spend) are easy to mix up, but they are not the same. ROAS looks at specific campaigns or channels and shows you the revenue for each pound spent on ads. MER looks at all marketing spend and compares it to overall revenue.
Think of ROAS as zooming in on specific parts of your marketing, while MER gives you the full picture. Both metrics are useful, but MER is great for understanding your overall marketing efficiency.
Blended ROAS and aMER: Adding Depth to MER
Blended ROAS: Sometimes, MER is called blended ROAS, especially in e-commerce. This means you look at all your marketing efforts together instead of just individual campaigns.
Acquisition Marketing Efficiency Rating (aMER): aMER focuses only on new customer revenue. It helps you figure out how much you should spend to get new customers and stay profitable.
Marginal Efficiency: Marginal MER or aMER looks at how effective each extra pound spent on marketing is. This is useful for figuring out when your spending stops being profitable.
How to Improve Your MER
If your MER isn't as high as you'd like, here are some ways to improve it:
Reallocate Your Budget: Look at whether you're spending money on channels that aren't working well. Move that money to higher-performing channels.
Increase Conversion Rates: Make your website or landing pages better to increase sales without needing more marketing spend.
Focus on High-Value Customers: Identify customer groups that bring in more value and focus your marketing on getting more of them.
Separate New vs. Existing Customers: Track revenue from new and existing customers separately. This will help you make better decisions about your ad spend.
Look at Post-Acquisition Revenue (PAR): If your business has customers with high lifetime value, look at your marketing spend over a longer period (like 60 days) to understand the real return.
When Should You Use MER?
MER is especially helpful if you use a lot of different marketing channels. For example, if you have Google Ads, Facebook Ads, email campaigns, and influencer marketing, MER brings all that data into one simple number. This helps you make sure you're not focusing too much on one channel and missing others.
TL;DR
Marketing Efficiency Ratio is a simple way to see how well your marketing spend is working to bring in revenue. It helps you understand your marketing as a whole, without getting lost in the details of each campaign. By keeping an eye on MER, you can make better decisions about where to spend your marketing budget and get the most out of it.
The Author
Adam has been knee-deep in the world of digital marketing for over 7 years, mastering the art of PPC and SEO for both B2B and B2C brands. As the brains behind Toast Digital, he’s got a knack for turning clicks into conversions. When he’s not busy making marketing magic, you’ll find him passionately talking about his latest vegetable-growing triumphs or showing off his camera roll, which is 90% dog pics. In short, he knows his stuff – whether it’s marketing or marrows.