What is MER and why is it important?
We’ve heard a LOT of questions lately on MER. If you have questions, you’re not alone.
Sure, we wrote a blog last week on why ad buyers and brand owners should switch to reviewing MER instead of in-platform ROAS, but to take a step back, let’s dive into the metric and go a little further on what it is and why it’s important, THEN we can convince clients to make the switch.
We also had an in-depth conversation in our Foxwell Founders Membership on this exact topic. Not a member? Check it out:
While media buyers may not be able to fully agree on what MER stands for, some of the better options are: Marketing Efficiency Rating, Media Efficiency Ratio, Marketing Effectiveness Ratio, Marketing/Media Expense Ratio, et cetera. No matter what you want to make MER stand for, all of these definitions mean the same thing. MER is the comparison between total revenue and total marketing spend/cost. Some ad buyers include the agency cost in marketing cost and some don’t. In our clients’ MER calculation, we do total shop revenue divided by total marketing ad spend (excluding our fee). However, whatever you decide to include/exclude, just make it consistent month over month.
FWIW, MER can also be known as (or used interchangeably with) blended ROAS. Basically it is the TOTAL return on ad spend when comparing ad spend (marketing costs) to total revenue (not just in-platform, advertising attributed revenue).
Why is blended ROAS needed now more than ever? Heard of a little something called iOS14 and ATT (Apple Tracking Transparency)? Yeah, that. It’s making it harder for Facebook (and other ad platforms) to track conversions like they have in the past.
MER is also a fundamental marketing metric: in theory, brands should want to spend about 10-30% of their total/top-line revenue on paid advertising. The 10-30% mentioned here is the inverse of MER.
For easy math, here’s an example (we’re visual learners here)
$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)
OR
$500 ad spend & $2,000 total shop sales = 25% of total sales spent on marketing (ad spend/revenue = 500/2000)
Essentially, you can calculate MER (aka blended ROAS) either way. However, we’ve found that clients/brands seem to like and understand a number (like 4X) better than a percentage (like 25%) because it’s more similar to the ROAS number they’re used to measuring success with. For the same reason, it may make more sense to call MER, ‘blended ROAS’ to clients and not confuse them with more nerdy advertising acronyms. (Btw, have you seen our marketing acronym guide? It’s fun. And nerdy).
All of this to answer this question: WHY MER instead of ROAS?
Here’s why:
In-platform reported and attributed revenue (whether it be Facebook, Google, Snapchat, etc.) is up for debate right now. It’s less than perfect, not necessarily correct, and we don’t know how far it’s off.
What’s NOT up for interpretation?
How much TOTAL money the shop made over a given period
How much marketing budget was spent
Keep in mind that digital marketing has never been fully attributable. Have you ever told a friend about an ad you saw and they bought it? Or saw an ad and bought it a month later on a different device? While no calculation will ever be 100% accurate, we believe MER is getting us much closer to an accurate depiction of digital advertising at this time.
As Foxwell Founder Member Carly Stringer said, “at the end of the day, it all boils down to the same thing: what’s your revenue and what are your costs? Based on these things, what can you afford in marketing spend? It doesn’t really matter which calculation you use if you and your clients are on the same page in terms of how you do it and what your goals and targets are.”
Don’t want to miss out on any of this nerdy (but insanely helpful) content in the future? Check out our Membership, and let us know if you have any questions.
