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Why Marketing Efficiency Ratio is top priority for marketers.

Unless you’re brand new to marketing (and if so, welcome!), you’re no stranger to the laundry list of acronyms that exist in the space. CAC, CPA, CPC, CPM, CTR, CRM, CRO – and that’s just the Cs. We’re willing to bet you’re so well acquainted with them that you’ve accidentally dropped a few in polite conversation, and been met with a blank, possibly annoyed, stare. We’ve all been there.

At any rate, it pays to be across the main few – your cost-per-clicks, your click-through rates, your conversions, etcetera. These are going to help you continuously measure, pivot and optimise your marketing strategies to improve your results.

However, if you ask most marketers what the undisputed king of KPIs is, the answer is likely ROAS. Your return-on-ad-spend is your ultimate target; the measure of your marketing success; the single-most-important figure to base your strategies on.

Right?

Nope.

Don’t get us wrong, ROAS is useful – but in 2021 it has become vastly overused, overly relied on, and, with the latest privacy updates turning the marketing world on its head – simply an inaccurate representation of how well you are really doing.

There’s a new sheriff in ad town, and its name is marketing efficiency ratio, or MER.

What is Marketing Efficiency Ratio?

Put simply: MER = Total Revenue/Total Paid Ad Spend.

It’s all the money you’ve made, divided by all the money you’ve spent on advertising.

For example, if you’ve made $32,114 in sales and paid $2997 on your advertising, your MER would be 32114/2997 = 10.71 (and congratulations, you’re killing it).

Sounds simple, right? That’s because it is. MER has actually been around for a while, but has been frequently overlooked for better-looking, more volatile, more granular metrics – like ROAS. 

Of course, marketing is ever-evolving, and it just so happens that the current state of play has put MER is back on top. Making it the priority is going to result in a far more effective (and likely, less stressful) marketing experience.

What makes Marketing Efficiency Ratio the best metric?

MER is also referred to as blended ROAS, as it takes all channels into consideration. This means it provides the most holistic overview of your advertising’s impact on revenue. 

It’s easy to get caught up in analysing the figures on a micro-level (hey, we’d be hypocrites to say otherwise).

Leveraging the data and putting the pieces together until it all makes sense is how great campaigns are made (we’ve had amazing success with our Megaphone Vortex). But sometimes, you have to zoom out.

Ever-optimising for ROAS is like riding a rollercoaster with blinders on. You’re quick to panic when it dips, say, from 4 to 3, and frantically try and “fix” it – turning things off, reducing spend, assuming the strategies aren’t working.

Turns out, when you have ROAS tunnel vision, what you inevitably end up doing is making rash decisions without seeing the whole picture. MER allows for a higher-level analysis of ad spend, the broader view of your entire marketing landscape rather than the tunnel vision ROAS of individual ads.

All the consumer decision-making analyses, buyer profiles and analytics in the world will never fully represent the complexity of human behaviour. Sometimes, people simply don’t act the way the data expects them to. 

Say someone saw your ad – but they forgot about your brand until weeks later, when they saw your product out in the street. Maybe they clicked the ad but have disabled their privacy tracking, or their phone died – so they switched to their laptop.

Did the ad still work? Of course it did. These customers still convert, but they aren’t captured by ROAS.

Marketers are in a constant juggling act, balancing multiple platforms, different channel attribution models, and the value assigned to all these touchpoints. Each has different reporting styles, and you’ve no doubt encountered the frustrating situation where the numbers don’t add up – Facebook says one thing, Google another. Then there’s the issue of the data itself, which is sometimes genuine, sometimes AI modelled, and sometimes several days behind.

It’s a minefield, and next to impossible to accurately analyse.

Here’s another scenario. Someone else clicks on your Facebook ad, checks out your website, and leaves because their washing finished, the doorbell rang, or their cat got stuck in the blinds again. One of an infinite number of possible reasons. But, then, they see your Instagram post, so they Google your brand, and commit to the purchase.

How do you determine which media provided the most value along that customer journey? Are they equally responsible? Can this even be measured? ?

The point is, they all contribute to the customer journey, and only MER is going to reflect that.

Not convinced? Here it is, straight from FB HQ.

“Ads manager is really no longer the source of truth on ROAS and we’d recommend using back end sales information to get a better idea of how ads are performing.”

Facebook Business Australia

So I can throw my ROAS figures in the bin?

Hold up. ROAS is a valuable tool, and useful for reporting on the direct success of your individual ad campaigns. Plus, broadly, it’s a handy guide for looking at what’s trending in your marketing. 

However, it should be just that – a guide. As we mentioned, iOS 15 has done a number on Facebook’s ability to track consumer behaviour. The data that used to be gospel is now no longer 100% accurate. Remember, if the customer purchases 14 days, even 8 days after they click – it’s delayed data.

A good marketer has their eye across everything, and knowing where your ROAS is sitting is never a bad thing. But, the way things are trending and with conversions constantly overlapping, it’s only going to become a less accurate, more difficult to ascertain figure, based on incomplete data or modelling predictions. It’s not worth living and dying by. 

MER should be your bottom-line metric and considered the best indication of your marketing profitability.

Of course…

If you have positively had your fill of acronyms or would rather someone else try to work out what to do with all those numbers, you’re looking at some of the best in the business.

Really – we were just named the Best Social Media Agency of the Year for 2021. 

Even if you do understand MER and why it’s so important, we guarantee we’ve got a few ways to improve that you never would have considered.
Interested? Let’s chat.

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