In the ever-evolving realm of digital marketing, metrics act as guiding stars, leading brands through the complex landscape of online advertising. Traditionally, Return on Ad Spend (ROAS) has reigned supreme as the go-to metric for evaluating campaign success. However, with iOS14+ update and the perennial tracking and attribution issue - Marketing Efficiency Ratio (MER) is the new approach. In this blog, we will delve into the reasons why MER is the metric brands should track, surpassing ROAS in providing a comprehensive view of campaign performance and ensuring long-term success.
Understanding the Limitations of Return on Ad Spend (ROAS)
ROAS, a vital metric, measures the revenue generated from advertising spend. Its simplicity has made it popular among marketers, as it directly evaluates campaign profitability. However, ROAS fails to capture the bigger picture, overlooking critical factors that influence sustained growth.
What is Marketing Efficiency Ratio (MER):
MER is the total sales revenue divided by total marketing spend (both from the same time period).
Calculating the Marketing Efficiency Ratio: To calculate the MER, you need two essential components: the total marketing expenses and the revenue generated from those marketing efforts. The formula for calculating MER is simple:
MER = Revenue Generated / Total Marketing Expenses (in the same activity period)
This ratio provides businesses with a clear picture of the return on investment (ROI) for their marketing activities, indicating how efficiently they are utilizing their marketing budget to drive revenue.
For example, a brand has spent $100000 across all platforms, say in a 3 month period and has achieved sales revenue of $600000 they still have a 6 times return on ad spend but across all platforms.
Significance of MER as a North Star Metric:
The MER serves as a North Star metric, guiding e-commerce businesses towards sustained growth and profitability.
Here are some key reasons why MER is considered a vital metric for assessing marketing efficiency:
Holistic Performance Measurement:
- MER offers a comprehensive view of marketing effectiveness by considering the overall revenue generated in relation to marketing expenses. It helps businesses evaluate the impact of their marketing activities on the bottom line, rather than focusing solely on individual campaign metrics
- Budget Optimization: By analyzing the MER, e-commerce businesses can identify areas where marketing spend can be optimized. This enables them to allocate their resources more effectively, ensuring that each marketing dollar spent delivers maximum returns
- Benchmarking and Goal Setting: MER provides a benchmark for comparing the efficiency of marketing efforts over time and against industry standards. It helps businesses set realistic goals for improving marketing efficiency, enabling them to track progress and make necessary adjustments along the way
- Data-Driven Decision Making: With MER as a guiding metric, e-commerce businesses can make informed decisions based on concrete data. By constantly monitoring and analyzing the MER, businesses can identify trends, patterns, and correlations that inform future marketing strategies and tactics
Conclusion: In the rapidly evolving world of e-commerce, marketing efficiency is paramount for for sustainable growth and success. The Marketing Efficiency Ratio (MER) serves as a valuable North Star metric, offering insights into the effectiveness of marketing efforts and guiding strategic decision-making. By leveraging MER, e-commerce businesses can optimize their marketing budget, improve performance, and propel themselves towards achieving their business objectives.