The sheer number of acronyms used in the marketing field can make your head spin, but MER is one of the most important shorthand terms to understand. MER is also known by other names, like marketing efficiency rating, media efficiency ratio, blended return on ad spend (ROAS) and ecosystem ROAS. What does MER stand for in marketing?
Marketing efficiency ratio is often used interchangeably with media efficiency ratio, or MER for short, which describes how effectively your overall marketing efforts are generating revenue. You will find debate on what is specifically measured in “overall marketing efforts”.
Most ecommerce business owners and analysts should use MER to focus on the overall efficiency of their biggest and most impactful discretionary spending bucket – that is paid social and paid search (advertising). This is where we focus and how we measure MER as well. So with that, the MER calculation is simple:
Total sales during the analysis period
Total media spend during the analysis period
On the other side of the coin, some would have you measure all marketing efforts including salaries, contractors, design costs, ecommerce SaaS apps, etc. However, you should measure that separately as simply marketing ROI where you take everything in your P&L (profit and loss statement) that’s under marketing, and divide that into your ecommerce revenue. Keeping MER separate from marketing ROI provides you with more insight and gives you a complete view of your marketing performance.
MER is a critical indicator in the marketing field, and it’s especially useful for ecommerce businesses. In this guide, we’re providing insights and guidance for ecommerce brands looking to use MER to steer their marketing efforts across all channels and produce increased revenue for every marketing dollar spent.
How MER Works
MER describes the general productivity of your overall ecommerce marketing efforts. The ratio (sometimes expressed as a multiplier) represents how much revenue every ad dollar spent has produced during a specific period.
To see how MER calculations work, let’s look at a quick hypothetical:
- A brand decides to run an MER calculation for the last twelve months of media spend
- In the last twelve months, the brand has spent $100,000 total on Google (paid search) and Meta (paid social) efforts
- During that same period, the brand produced $500,000 in sales
Let’s plug these figures into the formula:
MER = Total sales during the analysis period ÷ total media spending during the analysis period
MER = $500,000 ÷ $100,000
MER = 5
So, this hypothetical brand’s ratio of sales to media spend is 5:1 — every dollar in media spent generates five dollars in sales.
What’s a Good MER?
For ecommerce brands, a great all-up benchmark is 3.0 - 5.0. However, it will vary greatly by industry. A 3.0 might be closer to average for beauty and cosmetics while a 5.0+ might be more normal for higher-margin products like fashion. It also heavily depends on your stage of growth, revenue and media spend. But the trends over time are what help you most which brings us to what you can do with MER.
Leveraging MER: Specific Action Items
Calculating your marketing efficiency ratio can help you:
- Adjust your business goals and budgets accordingly to Improve ROI – Your MER must likely be greater than at least 3.0x to produce a positive ROI; if you generate $3 in revenue for every $1 spent on media, you might only be breaking even. You should have down cold where your percentage of revenue goes in terms of Cost of Goods Sold (COGS), variable selling costs, and fixed costs. Add in MER and your profit goals, and you have the full picture. Putting this data next to MER will give you an idea of where your balance should be. For example:
Total = 92%
Only leaves room for 8% profit
Variable Selling Costs
With this data, you can set goals for how you want the percentage of your revenue to fall.
- Benchmark your efficiency against other brands – MER is well-documented and benchmarked. You can easily compare your MER against other brands in your exact space and even target market. This will provide insights into your ability to compete with other brands in terms of advertising and customer acquisition. When comparing, ensure the comparison is using the same MER formula.
- Identify trends – You can now easily see over time if your overall efficiency for all your media spend is going up or down. Look at it in 6- and 12-month periods to account for seasonality. If it’s going down, make sure it’s intentional meaning you are pushing (experimenting, trying new channels, etc) or are trying to maximize absolute revenue and profit to the point of diminishing returns. If it’s going up, great job, you are maximizing your return on dollars. However, be sure to understand when it’s too high. A really high MER can indicate you are underspending and not maximizing your revenue and new customer potential. This is where you should dig deeper into ROAS and break-even models.
- Identify inefficiencies in your overall marketing budget – Imagine you discover that your advertising efforts over the last quarter have only produced a 2x ratio ($2 generated for every dollar spent). This discovery should prompt you to rethink your entire media and marketing budgets.
- Enhance customer acquisition and retention strategies – If you have specific numbers on marketing spend and revenue generation geared toward customer retention (existing business) and acquisition (new business), you can use these metrics to calculate your respective MERs for both. Read more below about aMER. This can help you better determine where to focus your media budgets.
Setting Ideal MER Targets and Defining a Suitable MER
Like any other marketing metric, you should consider setting a goal for your ideal MER performance and tweaking your resource allocation until you achieve that goal. But it’s important to set a MER goal that makes the most sense for your business goals.
If your business just launched or you’re making significant investments in marketing for the first time, don’t set an arbitrary goal. Your main focus for the first few months of your campaigns (and potentially the first year of your campaigns) should be maximizing revenue and customers – so long as you have enough profit to keep fueling the business.
Using the MER calculation early and often in your marketing efforts provides you with actionable insights you can use to make adjustments until you’re producing a positive ROI.
Once you achieve profitability, you can zoom in on customer acquisition specifically by using the aMER formula — a MER calculator specifically focused on customer acquisition:
aMER = Revenue generated from new customer sales ÷ total media spend
Lifetime Customer Value Optimizations
You might also consider optimizing your aMER formula to include customer lifetime value (LTV). You can determine LTV for individual customers, segments of your customer base or your entire customer base, and the formula is simple:
LTV = Average transaction size x retention period x number of transactions
Hypothetically, let’s say you want to examine the LTV of your customers aged 18-25. Let’s say that, on average, purchases in this segment are $25, the average customer stays engaged with your brand for 1 year and they make 4 purchases during that year:
LTV = $25 x 1 year x 4 purchases
LTV for 18-25 segment = $100
So, for the entirety of their relationship with your brand, a customer in the 18-25 segment spends $100. To maximize MER and profitability, consider:
- Determining which segments produce the highest LTV
- Calculating your aMER for that specific segment
- Focusing media on the highest-performing aMER segments
Strategies for Improving MER
If you’re looking to increase your MER (i.e., increase your return on marketing spend), consider the following strategies:
- Target the right audience – Use an aMER calculation optimized for LTV to find your most profitable segments and assess how your campaigns are performing in that segment.
- Refine your marketing channels and tactics – Tweak your resource allocation over time to learn which channels (e.g., Meta, Google, TikTok) and strategies (e.g., SEO, CRO) perform the best. Then, invest more heavily in the most efficient avenues.
- Test and optimize your marketing campaigns – A/B testing, for example, can help you predict how variations of a campaign will perform before launch.
Perhaps most importantly, remember to always monitor and analyze your MER metrics to continuously enhance your marketing efforts over time.
Optimize your MER Strategy with Human
Today’s brands can leverage marketing efficiency ratio calculations to optimize their marketing spend, find their most profitable segments and continuously improve their marketing efforts.
While the MER calculation is relatively simple, the resulting analyses can be complex. If you’re looking for expert guidance on optimizing your marketing spending, we’ve got your back.
We’re a revenue growth firm that caters specifically to the needs of ecommerce entrepreneurs. When you partner with us, we become an extension of your in-house team: and your success is our success.
If you’re ready to harness your growth potential, reach out to our team.