What is Media Efficiency Ratio (MER) and why is it so important? For the last five years, digital marketing has been hailed as the only platform that allows businesses to see ‘actual’ results on marketing spend compared to out-of-home, print, or press-related marketing. In a time when measurement & attribution is getting more convoluted, how can brands use MER to obtain a better understanding of marketing efforts?
For the last five years, digital marketing has been hailed as the only platform that allows businesses to see ‘actual’ results on marketing spend compared to out-of-home, print, or press-related marketing. While this is somewhat true - it is easier to obtain metrics such as engagement, reach, clicks, website visits, add-to-carts & purchases on digital marketing activities - the data is now becoming more and more convoluted.
While the introduction of iOS14.5 &15 along with a plethora of privacy-based changes across platforms over the last year has contributed to this, let’s be clear - digital platform data alone has never told the full story, it is just getting more and more difficult to make sense of this data. This is where the Media Efficiency Ratio (MER) comes in. Quite simply, MER looks at the relationship between money spent, and revenue generated.
The calculation for MER is: Revenue / Marketing (cost).
Now more than ever businesses should use MER for overall guidance on whether marketing efforts are working, and then look to use in platform & channel data to try and guide you as much as possible on what specific campaigns and creatives are working. MER not only provides a more holistic approach to measuring your marketing, but it also ensures spend is based on revenue and money available. It forces you to calculate total revenue and actual costs which allow you to identify what a business can afford to spend on marketing, rather than spending on a certain channel to get 10 X ROAs.
As an example, if a brand has $120,000 revenue, and spent $8,000 on digital advertising, $2,000 on out-of-home advertising, and $2,000 on influencer marketing, the total MER is 10. This metric removes the vanity metrics out of the question, like engagement, page likes, website visitors, etc, which aren’t contributing to overall growth, and focuses solely on money out - money in.
Why not just use in-platform ROAS?
ROAS - Return on Advertising Spend, is a figure that is frequently overused, and often under-reported or misreported by all platforms. It is calculated through the platforms used in advertising and is based on spend & revenue directly attributed to the campaigns within those platforms.
For example, a company spends $8,000 on adverts, and the platform is reporting $24,000 in sales for a ROAS of 3X - meaning for every $1 spent, we got $3 back. With increasingly high costs within advertising platforms themselves, different objectives within campaigns & platforms, combined with frequent misreporting, ROAS rarely tells the full picture, and definitely isn’t reflected in overall sales.
How does MER compare?
MER on the other hand allows for overall measurement. As an example, one of our clients is running Facebook advertising and Google advertising, as well as running a PR campaign and billboards around specific cities. The client, therefore, has a number of acquisition channels with different goals for each, however, the abandoned cart email or 10% off welcome email is where the customer actually converts 30-40% of the time.
Based on platform performance metrics, we know that the new audience we are targeting on Facebook & Google are seeing our adverts on average 2 x a week depending on how they engage with those adverts & behave on site. However, with the 7-day attribution window for advertising platforms & the various attribution models (last-click, first-click, multi-touch), the final conversion is often attributed to Email. This means that 80% of the time no ROAS is attributed to the paid channels, even if these channels were solely responsible for introducing the customer to the brand and getting the user into the funnel.
Using MER, these conversions would still be attributed in some way to paid media (alongside other activity), even if they are out of the attribution window & are not being reported on the platform. These kinds of calculations are extremely important for brands that have a long purchasing cycle, as well as brands that invest heavily in awareness and brand-building through paid channels, over conversion-focused adverts.
Attributing specific channel performance still matters, but so does evaluating the overall impact of how each channel works together to scale a business. MER provides that insight, where ROAS does not. Using MER, it’s easier to assess the overall impact of paid channels as a partner to organic channels, PR efforts, conversion optimisation, rather than looking at paid as a totally independent channel.
MER: A fundamental marketing metric.
We also look to MER as a fundamental marketing metric: in theory, brands should spend about 10-30% of their total revenue on paid advertising depending on growth goals. The 10-30% mentioned here is the inverse of MER. For example:
- $500 ad spend & $1,000 in-platform purchase value = 2X in-platform ROAS
- $500 ad spend & $2,000 total shop sales = 4X MER (revenue/ad spend = 2,000/500)
- $500 ad spend & $2,000 total shop sales = 25% of total sales spent on marketing (ad spend/revenue = 500/2000)
We work with our clients to evaluate appropriate spend levels utilising the reverse MER metric and refine this every month based on performance & overall sales revenue. Taking this holistic approach then allows us to look deeper into the objectives for each paid & unpaid marketing channel and analyse paid performance at a more granular level than ROAS.
Keeping in mind that digital marketing has never been fully attributable and no calculation will be 100% accurate, we believe utilising MER provides a much more holistic depiction of digital marketing in a time where platforms, analytics, and algorithms are changing daily.