MER
Category: Marketing
What is Marketing Efficiency Ratio (MER)?
Marketing Efficiency Ratio (MER) is a financial metric that measures the effectiveness of marketing investments as a ratio between total revenue and total marketing expenses. It provides a high level of visibility into how effectively marketing efforts generate revenue for the business.
MER is particularly useful for large organizations with multiple marketing channels, as it provides a comprehensive picture of marketing effectiveness without delving into the details of individual campaigns or channels.
Формула за изчисляване на MER
MER = Total Revenue ÷ Total Marketing Expenses
*MER shows how much money is generated for each monetary unit invested in marketing
Key Components of MER
Total Revenue
The total revenue generated by the business:
- Sales of products/services
- Subscription revenue
- Additional services
- Affiliate revenue
- All other sources of revenue
Important: Includes all revenue, not just those directly attributed to marketing
Marketing Expenses
All expenses related to marketing activities:
- Digital marketing
- Traditional advertising
- Marketing team salaries
- Marketing technologies
- Events and promotions
Important: Includes both fixed and variable expenses
Time Period
The period for which MER is calculated:
- Monthly analysis
- Quarterly review
- Annual report
- Seasonal periods
- Comparison with previous periods
Important: Consistency in time periods is key for accurate comparisons
Practical example for calculation: Company XYZ - January 2024
Total revenue: €500,000
Marketing expenses: €100,000
MER = €500,000 ÷ €100,000 = 5.0
This means that for every euro invested in marketing, the company generated 5 euros of revenue.
Analysis of the result:
MER of 5.0 is considered Excellent in most industries. This shows that marketing investments are highly effective and generate significant returns.
Interpretation of MER values
| MER value | Interpretation | Recommendations |
|---|---|---|
| > 10.0 Excellent | Exceptionally effective marketing, high return on investment | Increase the marketing budget, scale successful strategies |
| 5.0 - 10.0 Good | Healthy effectiveness, good results | Maintain current strategies, optimize ineffective channels |
| 3.0 - 5.0 Acceptable | Moderate effectiveness, there is room for improvement | Analyze channels, test new approaches, optimize expenses |
| < 3.0 Weak | Low effectiveness, risk of investment loss | Reconsider the strategy, reduce expenses, focus on the most effective channels |
Important notes:
- Industrial differences: The ideal MER varies significantly between different industries
- Business model: SaaS companies usually have higher MER values than e-commerce
- Growth stage: Startups may have a lower MER while investing in growth
- Seasonality: MER can vary significantly throughout the year
MER vs other marketing metrics
| Metric | Formula | Advantages | Restrictions |
|---|---|---|---|
| MER | Total Revenue ÷ Total Marketing Expenses | Comprehensive picture, easy to calculate | Does not show effectiveness by individual channels |
| ROAS | Advertising Revenue ÷ Advertising Expenses | Precise measurement of advertising campaigns | Limited to only advertising expenses |
| CAC | Marketing Expenses ÷ New Customers | Focused on acquiring customers | Ignores revenue from existing customers |
| LTV:CAC | LTV ÷ CAC | Measures long-term profitability | Complex to calculate, requires long data |
When to use MER:
- High level reports: For management and investors
- Budget planning: To determine the total marketing budget
- Comparison between periods: To track trends in effectiveness
- Benchmarking: To compare with industry standards
Key factors affecting MER
- Price strategy: Higher prices lead to higher MER with the same expenses
- Channel effectiveness: Optimized channels with low click cost improve MER
- Product-marketing alignment: Good alignment between product and marketing increases conversion
- Seasonality: MER naturally varies throughout the year in many industries
- Market conditions: Economic conditions affect consumer behavior
- Competitive environment: High competition can increase expenses and reduce MER
Best practices for optimizing MER
- Regular tracking: Calculate MER at least once monthly
- Data segmentation: Analyze MER by product lines, regions and channels
- Benchmarking: Compare your MER with industry standards
- Correlation analysis: Identify which factors most affect your MER
- Forecasting: Use historical data to forecast future MER
- A/B testing: Test different strategies to find the most effective
- Automation of reports: Create automated systems for MER reports
Strategies for improving MER:
| Strategy | Effect on MER | Complexity |
|---|---|---|
| Optimization of expenses | High (directly reduces the denominator) | Low |
| Improvement of conversion | High (increases the numerator) | Medium |
| Increase of average order value | High (increases the numerator) | Medium |
| Improvement of customer retention | Very high (increases the numerator) | High |
| Diversification of channels | Medium (decreases the dependency on expensive channels) | High |
Common mistakes when using MER
| Mistake | Problem | Solution |
|---|---|---|
| Inconsistent time periods | Revenue and expenses from different periods | Use the same time period for revenue and expenses |
| Missing marketing expenses | Missing hidden expenses (payments, software) | Include all direct and indirect marketing expenses |
| Ignoring the lag | MER does not account for the effect of marketing with a late result | Use attribution models that account for the lag |
| Over-focusing on MER | Ignoring other important metrics | Use MER together with ROAS, CAC, LTV and other metrics |
| Incorrect benchmarks | Comparison with incompatible industries | Compare only with direct competitors and industry |
MER by industries (example benchmarks)
| Industry | Average MER | Good MER | Excellent MER |
|---|---|---|---|
| E-commerce | 3.0 - 5.0 | 5.0 - 8.0 | 8.0+ |
| SaaS | 4.0 - 6.0 | 6.0 - 10.0 | 10.0+ |
| FinTech | 2.0 - 4.0 | 4.0 - 7.0 | 7.0+ |
| Education | 3.0 - 5.0 | 5.0 - 8.0 | 8.0+ |
| Healthcare | 2.0 - 4.0 | 4.0 - 6.0 | 6.0+ |
Note: These values are indicative and can vary significantly depending on the specifics of the business, market and business model.
Tools for tracking MER
- Google Analytics + Google Sheets: Manual calculation with data export
- Marketing Analytics Platforms: Specialized platforms like HubSpot, Marketo
- BI Tools: Tableau, Power BI for automated reports
- CRM Systems: Salesforce, HubSpot CRM with marketing modules
- Custom Dashboards: Personalized dashboards with data from multiple sources