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The Marketing Efficiency Ratio (MER) measures how a company uses its marketing assets to generate revenue.
Read on to learn more about MER.
There are numerous definitions of marketing. Our working definition is: "the right product, for the right people, at the right time and price."
The marketing efforts of a company revolve around offering products to new customers and existing customers.
At times, it involves filling the gaps in markets or creating a new market. A significant part of marketing focuses not only on product sales but also gauging the price points customers are willing to pay at any given time.
Let's take the example of mobile phones. Just a few years ago, all the manufacturers and service providers focused on selling the service, i.e. mobility and communications. But over the years many brands have pioneered product offerings, backed by service quality improvements by the carriers, especially mobile internet services.
It also introduced phone cameras and accessories as a necessary part of the device experience. The example shows how marketing influences a company's operations, to the point of changing its manufacturing and distribution channels.
The marketing efficiency ratio calculates the effectiveness of your marketing spend over a predetermined time frame.
It is sometimes referred to as "blended return on ad spend (blended ROAS)" or "marketing efficiency rating."
ROAS is a widely used framework to make key strategic decisions regarding the effective spending of advertising campaigns.
The marketing efficiency ratio only shows how well your ad dollars were spent. MER, on the other hand, gives you precise insight into the effectiveness of your ad spending in relation to revenue generated.
To derive the marketing efficiency ratio (MER) simply divide total revenue for a specific period by total ad spend during the same time frame covering all consumer touch points.
Here's a brief example to demonstrate the calculations.
Total revenue (sales) in 2022 = $3,210,000
Total ad spend in 2022 = $658,000
Therefore, your MER for 2022 was $3,210,000 / $658,000 = 4.75 or 475%.
We often confuse efficiency with effectiveness, which is not limited to ad spend or media efficiency ratio. According to the Oxford dictionary, "efficiency" measures how successfully the inputs (covering all resources) are transformed into outputs (product offerings).
In contrast, "effectiveness" measures how successfully the system achieves its desired outputs (the intended results). This concept also applies to marketing efforts.
One independent statistic of ad spend efficacy is the marketing efficiency ratio. The ideal marketing efficiency ratio (MER) depends on your company's size and scope, product line, marketing plan, and long-term growth goals. As a result, it is only fiction that having a 3x MER is desired.
You may have a brand with a 5x MER but less profitability than a comparable product with a 3x MER. Additionally, a brand with a significantly lower MER can achieve great success.
The usefulness of MER in marketing strategy is better understood in light of the following:
Every business needs a marketing efficiency ratio - MER since it makes it possible to measure the effectiveness of promotional activities. It also helps change your tactics and spend as necessary to grow your business.
For many brands, MER will become increasingly more important if Facebook marketing is impeded by tracking restrictions on iOS devices and the absence of third-party cookies.
By employing the marketing efficiency ratio's performance-based approach, businesses may evaluate the overall effect of their advertising initiatives and make crucial strategic decisions for their long-term success. It also helps them better interact with customers and boost sales.
