Maximizing Your eCommerce Profits: The Power of Marketing Efficiency Ratio

Having a strong understanding of your ad spend and the revenue paid ads generate is crucial to the success of your business. Building a lasting eCommerce business relies on carefully monitoring and enhancing KPIs that drive meaningful growth. 

The marketing efficiency ratio (MER) is a powerful but overlooked metric to help you better understand and scale your business. Read on to learn more about this metric and to use it to enhance your marketing efforts.

What is Marketing Efficiency Ratio (MER)?

Your marketing efficiency ratio (MER) describes how much revenue is generated from all your paid ad campaigns. It’s often confused with other metrics, like ROI and ROAS, but it has crucial differences that make it a powerful KPI to stay aware of.

MER takes a high-level overview of all of your marketing efforts and the revenue they generate. Calculating MER does not consider any individual platforms or campaigns but your total spending on paid ads for the period. 

Much like tracking other KPIs, you should calculate your MER for the same period to produce comparable results. For example, calculating MER every month or every quarter to evaluate how your efforts for that timeframe performed.

Let’s discuss how it differs from ROAS and how it varies from the marketing efficiency ratio calculator.

MER vs ROAS

Return on ad spend (ROAS) is a specific type of return on investment (ROI) that evaluates how much revenue a specific ad campaign generates. The ROAS formula is:

ROAS = (Revenue / Ad spend) * 100

You can see how ROAS is calculated based on a specific campaign, such as Facebook Ads or TikTok Ads, to determine each ROAS and compare.

You can see below how Varos shows your ROAS right alongside your peers so you know if your campaigns are performing better or worse than your competitors. 

A strong understanding of your KPIs and real-time competitor benchmarking helps you identify areas of overspending and underspending, allowing you to increase your MER.

The MER Formula

The marketing efficiency ratio calculation, or sales efficiency formula, is similar to the ROAS formula but includes all campaigns and total revenue. The formula is:

MER = (Total revenue / Total ad spend) * 100

The result is a percentage describing the success of your MER ads, which is every campaign you ran regardless of the platform for the measured period. Anything over 100% indicates you generated more revenue than you spent on all ads.

You may also see MER displayed as a whole number depending, which removes the percentage conversions but still conveys the same principles.

Many eCommerce businesses overlook MER and instead calculate ROAS per campaign. However, while it’s great to understand ROAS at the campaign level, taking a higher-level overview of how your combined efforts benefit your business is crucial.

Effective Ways to Increase Your Marketing Efficiency Ratio

Calculating your MER is only the beginning. Once you know your current ratio, you’ll want to take strategic steps to make your efforts more efficient. The overall goal is to make every dollar spent on paid ads generate the most revenue possible while also avoiding overspending that may have diminishing returns.

Let’s dive into some practical ways you can start enhancing the efficiency of your marketing efforts.

Focus on the Break Even Point

One of the most powerful ways to use your MER is by identifying your break-even point. This point is when a new dollar spent on marketing does not generate additional revenue.

Every business has a break-even point, from small businesses to global corporations. MER is one of the best ways to identify your break-even point and then move beyond it.

Finding your break-even point relies on calculating your MER as your ad spend increases, then monitoring any decreases. For example, you may notice that when your spending exceeds $20,000 per month, your MER decreases compared to a lower amount the previous month.

Once you find this point, it’s crucial not to view it as a hard limit. Instead, it’s an opportunity to stop spending more and evaluate each specific campaign, all of your landing pages, and the customer journey to surpass the break-even point.

Better Evaluate Omnichannel Marketing

You’re likely already marketing on multiple platforms, yet calculating results for each campaign or platform. It’s undoubtedly crucial to calculate per-platform ROAS, but you also need to take a step back and take a holistic view of all marketing efforts.

Understanding your MER shifts the focus from specific campaigns to everything you’ve done and how much generated was earned. You’ll be able to evaluate all campaigns, any on-site changes, improvements to your product line, or customer service changes.

For example, you likely have both CPM and CPC campaigns. But your ROAS calculations will almost always show the CPM campaign as less profitable since they focus on overall awareness.

You’ll have a better understanding of the true effectiveness of CPM campaigns and any other efforts focusing on brand awareness. While challenging to track individually, MER allows you to evaluate better how they’ve helped your business.

Use MER to Inform Forecasting and Pacing

MER takes a high-level overview of your marketing efforts and their results, which makes it an excellent metric to help forecast ad spend and how to pace changes in spending.

After you’ve been tracking MER for a few months, you’ll have a solid understanding of how much spending will generate a specific amount of revenue. You may have also identified your break-even point. 

You’ll now understand the ad spend baseline on maintaining steady revenue to support the business. Then, you can forecast future spending over the next few months and create set pacing for increasing spending.

Enhance the Overall Sales Funnel

Your paid ad campaigns target the first few steps of your sales funnel; then, your on-site tactics take it from there. However, only focusing on paid ad campaigns doesn’t consider what happens after visitors reach your site.

ROAS indeed considers your on-site design, pricing, and CTAs, but in the context of a specific campaign. MER evaluates the same factors collectively with all campaigns, which means tracking your MER allows you to see the effectiveness of making on-site changes to refine your sales funnel.

For example, you can run a high-level A/B test on crucial landing pages or checkout processes to see how they affect every visitor, not just those from Facebook Ads. You’ll then better understand how to enhance your on-site sales funnel to generate conversions.

Team Up with Varos for Real-Time Competitor KPI Benchmarking

MER is an overlooked metric that’s well worth calculating, tracking, and enhancing over a long time. 

This metric provides a high-level overview of your total marketing efforts, allowing you to take strategic actions to increase revenue. You’ll also identify your break-even point and know when your ad spend is not acquiring customers.

Below, you can see how Varos shows your results alongside your peers’ performance and only considers other businesses within your industry. You can use industry benchmarks to gauge if you’re spending too much or too little, then take corrective action to improve your MER.

Ready to gain deeper insights into your MER to maximize the results from every dollar spent on paid ads? Sign up with Varos today, or reach out to us for a demo to learn more.

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About the Author

Sarah Clowes-Walker 

Head of Marketing at Varos

LinkedIn