It may be true that marketers with larger budgets have an inside lane in the race, but size-related advantages can be squandered unless their activities are cost-efficient. It makes no sense to spend more on a campaign than you gain back through increased sales, and keeping a good balance between incoming and outgoing funds is essential.
Of course, many businesses are completely unaware how their marketing efforts are performing and how much it costs to acquire a new customer. Metrics such as MER can shed some light on this process and inform corporate decision-making regarding the most optimal marketing messages, channels, and activities. This metric provides some much-needed insight into the balance between marketing expenses and tangible results arising from the activities that were paid for. While it’s not a catch-all measurement, MER deserves to be among the metrics that companies are tracking on a regular basis.
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MER is a simple abbreviation that stands for Marketing Efficiency Rating. As the name implies, the main purpose of this indicator is to show how efficient are marketing activities when viewed on a macro level. Rather than focusing on detailed analytics for each channel and product, MER tends to be a holistic metric that aims to capture the overall ability of the company to monetize its marketing messages.
In this case, efficiency pertains to new revenues per every marketing dollar spent in a set interval of time. In other words, this measurement tells us how much the company gained by running its marketing campaigns in the previous period. All promotional activities that were budgeted should be taken into account, along with a net effect of revenues. In this way, marketers can look at the big picture rather than obsess about variations from one channel to the next, which can be difficult to analyze and even more challenging to predict.
While MER sounds like a complicated construct, in practice it’s not very hard to calculate it. All you need to do is to divide total marketing spend with total revenues created, and the resulting value is MER for your campaign. For example, if a company spends $1000 on marketing and sees $2000 in revenues as a result, it has MER of 2.0. The same value can be expressed as a percentage by multiplying it by a factor of 100, in this case that would be 200%.
The trick is to accurately add up all expenses and estimate total revenues, and once you do that plugging the numbers into the formula takes only a moment. Since the calculation is so simple, companies should always keep track of their MER regardless of the scope of their marketing activities. Having an accurate reading of MER is essential for understanding the current state of affairs and predicting how the company will perform financially in the near future.
In case MER reflects a poor ratio between spending and business growth, that’s a signal that something needs to be changed. At this point, marketing managers need to dig deeper into the statistics for each channel individually and try to identify areas for improvement. However, if MER stays dramatically low for a long period despite repeated attempts to improve it, that is a sign that the general approach to promotion is not working as planned and a new strategy needs to be found promptly.
MER can be used across many different industries, but expected values are not the same for all businesses. Startups and smaller companies can tolerate MER under the value of 1.0 for a while, which basically means a company is spending more than it’s bringing in. Of course, this can’t last forever but if the main goal is to increase brand visibility rather than stimulate sales directly a low MER is somewhat expected during the initial part of the campaign.
For most businesses, having MER of at least 3.0 (earning $3 for every $1 of marketing budget) should be the threshold for evaluating a campaign as successful. At this level, the returns are large enough to justify the chosen approach and encourage the company to commit more resources to it. Follow-up measurements are recommended to see whether the efficiency rating remains stable or erodes over time, and in ideal case MER should nudge slightly upwards as the company collects feedback and refines its messages.
There are some lines of business in which a higher MER is required to maintain profitability. One commonly cited example is e-commerce, where MER of at least 5.0 should be the target. With this in mind, businesses should account for the requirements of their industry, fixed production costs, and overhead, storage and shipping costs, etc. Marketing is never conducted in a vacuum and holistic metrics such as MER must always be interpreted in the proper context.
It goes without saying that access to accurate insights about marketing performance helps the management to make better decisions and maximize the impact of the available budget. Data-based marketing planning has numerous advantages that could save the company from costly mistakes and allow it to capitalize on unexpected opportunities. In particular, regular measurement of MER allows companies to do the following:
What are two major input points that make the calculation of MER possible?
Since MER is essentially the ratio between total marketing expenditure and total revenues, it’s clear these two quantities are sufficient to calculate it. It’s important that both input parameters are calculated precisely for the same time period, or MER won’t be indicative of the true situation.
What is the difference between MER and better-known metrics such as ROAS?
While MER looks similar to Return on Advertising Spending (ROAS) metric, the difference is what each of them attempts to measure. MER is a holistic parameter that looks at the big picture, while ROAS is more focused on analyzing the effectiveness of each marketing channel.
What to do if MER remains at a disappointingly low level for a while?
This is a clear sign that changes are needed, and they can be enacted on several levels. The marketer should think about shaking up the marketing mix by adding new media, while also redefining the central campaign messages. Larger companies could think about hiring a new marketing agency to assist with the transition and suggest possible solutions.
Learning the terminology of marketing analytics empowers professionals to control the outcomes of their efforts. MER is certainly one of the most relevant terms of this kind, as it provides a measure of the campaign’s cost-effectiveness. Once you understand how the formula works, it’s very easy to calculate the exact MER for any given period of time. Doing that is the first step towards adopting a data-driven mindset, which can be instrumental for improving marketing efforts and ensuring that the business will remain profitable in the long run.