You’re probably spending a lot on ads and it’s definitely helping your business, but are you getting the return you deserve? Understanding your marketing efficiency ratio (MER) is key to knowing how well your Facebook ad strategy is performing. 

What is MER and How Does It Affect Your Facebook ROAS?

Your Facebook advertising dollars need to work hard, but do you have a tool that tells you exactly how efficiently they’re being utilized? Facebook ROAS (return on ad sales), for instance, is becoming harder to determine by the day as Apple and Google move to restrict data collection policies. It’s still a decent indicator for the short term, but without a clear metric for the long term, it can be challenging to evaluate your marketing success.

MER is here to save the day. This simple stat can tell you everything you need to know about how far your Facebook ad investment is being stretched. If you understand how to calculate it and apply the results, you’ll be well on your way to making your marketing as efficient and effective as possible.

That’s why we’re going to demystify all things MER for you, the king of ad spend KPIs!

What is MER?

MER stands for “marketing efficiency ratio”, and it distills your company’s entire marketing effort down to a single number. But what is MER offering in terms of real-world advantages? 

At its core, MER measures your lead generation efficiency for your ad spend. 

How do you calculate MER?

To calculate MER, divide your gross revenue by your total ad spend. A $2 million expenditure on advertising that generates $10 million in revenue produces a MER of 5.0:

$10 million ÷ $2 million = 5.0 MER

This simple number tells you that your business generates five dollars in revenue for every dollar spent on marketing. Not bad, though it varies by industry.

A MER of 2.0 is the break-even point, and lower numbers are just red ink. It’s a great early-warning metric that helps you identify tipping points in your overall marketing campaigns.

Customer Retention vs. Acquisition

Advertising channels for customer retention vs. acquisition are very different. When filtering data by ad channel, the resulting MERs will give you a good idea how each facet is performing.

Retention 

Ideally, you don’t want to spend a lot to keep customers you already have, so MER should be high. Managing a healthy MER for retention keeps these costs low and ensures any customer retention discounts are delivering maximum profitability. 

New Customer Acquisition

MER for new customer acquisition is thornier. Ad spend is a big part of the cost of filling the funnel, so you should expect a lower MER for the first-timers. However, it’s also growing your business, so it’s worth it! 

You’ll need to keep a close eye on the data to understand your overall lead-generation efficiency. 

Different types of MER

Regrettably, profits don’t endlessly skyrocket by shoveling ever-increasing rolls of Franklins into your marketing budget. The ability to identify the threshold of diminishing returns for your marketing campaigns enables you to manage ad spend much more profitably. 

What is MER able to tell you about these subtle inflection points? Everything, if you know how to apply it.

aMER

Acquisition marketing efficiency ratio (aMER) reveals much new revenue your total ad spend is generating, and it’s a very useful tool for understanding how your dollar is growing your business. 

For instance, this year, your company spent $2 million on Facebook marketing and brought in $10 million in total revenue. The MER of 5.0 means smooth sailing, right?

Maybe. But a quick aMER calculation reveals that revenue from new customers was only $500,000 against the advertising budget of $2 million That’s $500k ÷ $2 million, or an aMER of just 0.25.

Keeping aMER on target guarantees the steady flow of new customers your business needs to scale.

Marginal aMER

If your ad spend isn’t generating the new revenue you’re looking for, some data to help you understand why would be incredibly helpful. Marginal aMER analysis can fill in the gaps, and tell you which way to steer the ship. 

Marginal aMER further breaks down aMER to reveal how different levels of ad spend correlate with changes in revenue. It’s calculated by dividing your marginal acquired revenue by your marginal ad spend. 

Last year, your business spent $100k on new customer acquisition marketing, which generated $400,000 in new revenue. $400k ÷ $100k gives a marginal aMER of 4.0. A good number!

But spending more doesn’t necessarily mean getting more. This year, you doubled your spending to $200k, but you didn’t get the $800k you expected. You only got $500k. The extra $100k didn’t buy as much as the first $100k you spent. What gives?

It turns out that aMER numbers vary depending on how much you spend, and the data often shows you patterns that can tell you the optimal numbers to get the highest return on your investment. That’s marginal aMER! 

Context is for Kings

There are many KPIs that can help you understand where to invest your pennies, but not all of them tell you exactly what isn’t working and what is. MER and its variations are some of the best indicators of overall marketing effectiveness of Facebook ad campaigns. If your marketing partner is showering you with great KPI numbers but you’re not seeing the projected revenue? 

Time to check your MERs. 

Facebook is a huge platforms, but without expertise it’s difficult to maximize ad spend. A highly-experienced social media marketing partner is a smart investment that can boost your MER to where it needs to be.

Here at Social Ktchn, we’re Facebook and Instagram marketing experts. Think of us as a digital mom and pop shop. We love becoming an extension of our clients’ teams and can help make your MER sing. 

We’d love to help you uplevel your social ads. Reach out today! 

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