Marketing Efficiency Ratio

Marketing efficiency ratio (or short: MER) is one of the ways to measure the efficiency of a company’s advertising spend, i.e. by calculating its overall value in relation to the overall business revenue.

What is MER?

In brief, the concept of MER implies the measurement of the overall effectiveness of the marketing spend, instead of calculating ROAS for each digital advertising campaign separately.

Namely, the simple formula to calculate the marketing efficiency ratio is as follows:

MER =  total revenue / total ad spend

Benefits of Measuring MER

Even though the concept of MER is everything but new, its use is, clearly, making a come-back in view of the continuous decrease of the brands’ access to a full spectrum of data, required to precisely measure ROAS across all platforms and mediums. Add it to the deprecation of third-party cookies in 2024, and the perspectives of keeping a clear vision of whether and how effectively a company is spending its online advertising dollars (given the rising social media marketing cost, etc,) to achieve its marketing goals are getting more vague.

In this respect, the MER metric offers a more holistic view of how well all digital marketing channels and platforms are performing in tandem (instead of just measuring social engagement data, e.g. Instagram social media report data, the efficiency of the IG reels monetization, etc.), and whether their performance is good enough to help a business achieve its revenue goals.

Potential Downsides & Perspectives of Adoption

One of the obvious downsides of measuring MER is that there’s no unified benchmark across various market verticals on how high this ratio should be to be able to indicate the company’s actual profitability, derived from its advertising activities.

Namely, while some experts presume the avg. 3.0 MER is a good way to go, others admit that even the 5.0 MER may not mean the business is profitable enough to develop and scale further.

One thing is clear, marketing efficiency ratio isn’t likely to become the one-covers-it-all digital advertising KPI in the months to come, but it definitely should be yet another element of a complex video ad measurement structure.

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