Believe it or not, there’s a bit of a friendly debate in the marketing community on what “MER” stands for, so have your pick at:
Okay, so I made the last one up, but this metric is simple.
Marketing Efficiency Ratio (MER) is calculated by taking total revenue derived from marketing, and dividing it by your total marketing spend over any given time frame.
It is the same thing as eROAS in the 3 ROAS to Rule Them All.
MER = Total Revenue/Total Ad Spend
Another way to think of MER is how “Effective” your paid media is (again why eROAS is a better name, but I’ll take the L here, people like MER better 🤣).
What MER allows you to do is abstract away attribution and answer the question: how many revenue dollars are being generated for every dollar in ad spend?
One way to display MER in Triple Whale is a percentage. This is labeled MER in the section builder.
The easiest way to understand what this metric is telling you is “What percentage of my revenue was used on paid media?”
In the example below, this person spent 17% of revenue on paid media.
You’ll also be able to display MER as a number in your Triple Whale dashboard. This is labeled Blended ROAS in the section builder (and already a part of the pre-built 3 ROAS to Rule Them All Section).
Think of this as if every dollar you make is attributed back to some sort of marketing spend.
Remember we abstract away the attribution with MER. So as long as the money hits the Shoppies * cue Shopify Sale Sound *, we really don’t care where it came from (we do, but you get my point).
So, in this example the MER is a 13.62, which means that for every ad dollar spent, $13.62 of revenue was generated.
Another way to think of it is…you are walking down the street in Austin and meet an incredibly nice MERMan 🧜♂️.
MERMen are notoriously generous, especially when you give them effective ad dollars.
Now, in this example every time you gave this MERMan $1 Ad Dollar, they gave you back $13.62.
Perf. We love MERman!
MER is a metric you can use as your north star when you’re lost in the sea of attribution (you knew a pun was coming).
Whether you’re uncertain of Facebook’s ability to drive revenue to your business or not, you can view your MER at any given time to best understand the effectiveness of your paid media.
If you’re operating below your MER goal, you can cut back spend on the platforms you’re least confident in or launch new ads.
Either way, you know the effectiveness of your current paid media is degrading.
Jan 1 hits and your CEO tells you and your team that we want to shoot for $10M in revenue this year. And based on all of the data, you can do that profitably with a 5 MER (or a marketing spend equal to 20% of your revenue goal). You now know that you need to build your paid media strategy with a $2M war chest.
Or say you just scored a new client and they want to hit $100k in revenue next month. They have a $200 Mode AOV, (don’t know what Mode AOV is; check out 3 Amigos of AOV).
Before we can calculate a Target MER we have to do some maths:
Revenue Goal/AOV = $100,000/$200 = ~ 500 Orders
Great! Now we know we need 500 orders next month to hit our target. Next, we looked at the data and surmised a CPA of $30 is a reasonable goal. The client agrees.
Finally, we calculate the budget (almost there):
Total Ad Spend = Orders * CPA = 500*$30 = $15,000
Dope. Now we know the Total Revenue and Total Ad Spend.
Time to calculate our target MER.
Target MER = $100,000/$15,000 = 6.67
So going back to our MERMan analogy, you know for every ad dollar you give the MERMan, they have to give you $6.67 back. Or you have to find a different MERMan or give them better ad dollars.
TBF there are a lot assumptions built in here, but:
1) I went to school for economics, which is basically just making a bunch of redic assumptions all the time ;)
2) This is just thesis building, the thesis having a few axioms:
Outside the third one (which is purposely pessimistic to build in some wiggle room), I think this is a reasonable workflow to calculate a target MER.
Side note: If you want to calculate target MER in % form it would be 15%. Meaning you could spend up to 15% of revenues on paid media.
Target MER % = Total Ad Spend/Rev Goal * 100 = (15,000/100,000)*100 = 15%
Every rose has its thorn. While this is essay is fairly pro-MER, the bottom line is MER doesn’t possess the fidelity to give you actionable insights at the campaign, ad set or ad level.
Abstracting away of attribution into channel agnostic metrics is both a feature and a bug.
To be fair you can mitigate some of this ambiguity with simplified campaign structures and some other architectural nuances.
However, without something like the Triple Pixel; the only real way to understand the accretive impact of your paid media is incrementality testing.
This is an entirely different other ocean of wisdom and an incredibly important topic that we will surely dive into in the future.
But until then, I leave you in the incredibly capable and uber talented hands of Alex P. She has sublime essay on incrementality: Foundations: Marketing Incrementality. She is so good 🙄.
Alright folks, that’s all I got.
I hope you have a better understanding of why MER is such an important KPI, how to calculate it and what it means.
Marketing Efficiency Ratio is an essential KPI every Whale Mailer should have a robust understanding of and now you do 🙌.
Have a Whale of day!
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