Varos Glossary

Marketing Efficiency Ratio

What is Marketing Efficiency Ratio?

As competition heats up in the ecommerce industry and available cash flow dwindles, there is increased pressure to prove the value of every marketing dollar spent. Monitoring your Marketing Efficiency Ratio (MER) provides the quantifiable data needed to benchmark performance. You'll be able to optimize your budget and boost marketing ROI.

The marketing efficiency ratio is a crucial metric used to measure the effectiveness of marketing spend. It calculates the total revenue generated, considering the total amount you have spent on marketing.

In simple terms, it shows how much revenue your business earns for your entire marketing budget. It is similar to return on ad spend (ROAS) but more high-level, looking at total marketing spend rather than individual campaigns.

Calculating MER

The formula for MER is:

(Total Revenue / Total Marketing Spend) x 100 = Marketing Efficiency Ratio

To calculate MER, first determine the time period to analyze. This is typically done on a monthly, quarterly, or annual basis. Next, identify the total revenue and total marketing spend for that period. 

Make sure to include all your spending costs, like advertising, events, content development, SEO, and more. It is really a comprehensive, all-around view. Finally, divide total revenue by total marketing spend and multiply by 100 to get a percentage. Note that MER is sometimes expressed as a whole number and not a percentage.

For example:

Revenue: $1 million 

Marketing Spend: $200,000

MER = ($1,000,000 / $200,000) x 100 = 500%

This shows the marketing spend generated 5X revenue for that period, an MER of 500%. Higher percentages signal greater marketing efficiency and return.

Differences from ROAS

While MER and ROAS both measure marketing return, there are differences between both ecommerce KPIs:

  • MER considers total revenue against total marketing spend. ROAS calculates returns per campaign.
  • MER provides a high-level efficiency view. ROAS offers more granular campaign insights.
  • MER benchmarks performance over time. ROAS optimizes individual initiatives.

So, in summary, MER gives the big-picture view of marketing ROI. And ROAS analyzes performance for specific marketing activities. They complement each other in analyzing marketing effectiveness.

What is a Good MER?

There's no universally accepted "good" MER across industries. Success depends on factors like profit margins, growth stage, and budget size. Customer lifetime value compared to acquisition cost also plays a role.

However, a marketing efficiency ratio of 300% or 3X is often seen as a solid benchmark for an effective program. This means $3 in revenue earned for every $1 in marketing spend. Of course, your ideal MER will vary based on the business model, industry, and goals. The key is continuously optimizing your MER over time.

Using Varos to Benchmark Performance

The best way to gauge a “good” MER is by comparing your ratio to industry benchmarks. Varos compiles up-to-date MER metrics across verticals. 

Our platform allows you to objectively see where your marketing effectiveness stands versus competitors. That way, you can identify strengths, weaknesses, and areas for improvement. Varos enables data-driven decision-making by tracking over $15B of revenue annually.

Benefits of Tracking MER

Monitoring the marketing efficiency ratio provides significant benefits for businesses. When keeping an eye on it, companies can:

  • Benchmark Performance: MER enables you to benchmark your marketing performance against competitors and industry standards over time. Rather than guesswork, you have an objective metric to evaluate success and identify areas needing improvement.
  • Optimize Budgets: Knowing your MER guides data-driven budget allocation decisions. For instance, you might see that increasing your overall marketing budget has a threshold for revenue growth. 
  • Quantify Marketing's Revenue Impact: MER tangibly demonstrates marketing's impact on revenue and ROI. The higher your ratio, the more revenue gets credited to marketing activities. It quantifies marketing's value to leadership.
  • Maintain Profitable Growth: MER helps you double down on what works while cutting ineffective programs. Only spending where return exceeds investment ensures profitable growth.

Rather than gut instinct, MER enables data-driven marketing spending decisions. Teams are kept accountable by objective measurement. 

Improving Your MER

If your marketing efficiency ratio is lagging behind your industry’s average ecommerce benchmarks, there are several strategies you can consider to improve it:

Optimize Conversion Rates

One effective approach is to focus on optimizing conversion rates across your marketing and sales funnel. Look for potential friction points where customers are dropping off and enhance the user experience at those touchpoints. 

For example, ensure your website is mobile-friendly, pages load quickly, and the checkout process is seamless. Smoothing out the journey for customers can increase conversions, thus directly boosting revenue.

Analyze Marketing ROI

It's also helpful to closely analyze the return on investment for each marketing channel and campaign. Review performance data to see where your dollars are generating the highest returns. You can then strategically shift the budget to those high-ROI platforms while phasing out lower-performing ones. Continuously optimizing campaigns based on results can incrementally improve ROI over time.

Diversify Your Marketing Mix

Another strategy is diversifying your marketing mix by balancing spending across multiple established and emerging channels. This spreads out risk and allows you to take advantage of new platforms where returns may be higher due to lower competition. 

Notably, you could allocate resources across paid search, social ads, content marketing, influencer partnerships, and more. User-generated content is especially effective these days, garnering 50% more engagement compared to traditional display ads. 

Take a Full-Funnel Approach

When developing content and campaigns, the goal should be resonating with your target audience and moving them toward action. Create compelling assets across formats that attract new visitors, convert them to leads, nurture leads into customers, and build loyalty. 

Build Customer Relationships

Look for ways to continually engage customers beyond the initial sale, as ongoing relationships increase lifetime value. Use email, SMS, social media, loyalty programs, and more to re-target past purchasers. The longer you can retain customers and drive repeat sales, the higher your MER will climb.

Get a Complete View with Varos

Effectively measuring and optimizing MER is critical for driving marketing performance. Varos provides an easy way to:

  • Benchmark your MER against competitors in your industry.
  • Quickly identify improvement areas based on comparative data.
  • Continually optimize budget and strategy to boost efficiency.
  • Enable better marketing decisions through accurate ROI measurement.
  • Maintain profitable growth through rigorous yet easy MER tracking.

Book a demo today to gain complete visibility into your marketing efficiency and return. 

About the Author

Sarah Clowes-Walker 

Head of Marketing at Varos