Marketing efficiency ratio: How to track paid channels
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When running any digital marketing campaigns, particularly those which include paid media channels such as paid social and PPC, it is essential to have a form of success measurement. More often than not for ecommerce brands, this usually results in one channel reporting on its own ROAS, another channel reporting on its own ROAS etc., and ultimately businesses are left to interpret multiple sets of results for each channel.
Although this can be an effective way of measuring performance, this method doesn’t allow for the understanding of how different marketing channels work together. That is where we recommend a different approach, namely Marketing Efficiency Ratio reporting.
We’ll dive into what Marketing Efficiency Ratios are, why we use them, and how they can change the game for your business’s digital marketing.
Understanding Marketing Efficiency Ratios
What is MER?
Marketing Efficiency Ratio (often abbreviated to MER) is a way of reporting on your digital marketing campaign performance holistically. Most ecom businesses will utilise a ROAS (return on ad spend) model, which considers a specific channel’s spend and subsequent revenue contribution. In contrast, MER looks at your total spend vs. your total online revenue. This allows you to measure the success of your digital marketing as a whole.
MER Calculation
The calculation, seen below, gives you one number, in a similar way to ROAS, that you can monitor and optimise towards.
MER = total revenue/total advertising costs (including ad spend, agency fees etc.)
Example:
- You spent £50,000 in January across PPC and Paid Social
- Your agency fees are £5,000
- You generated £500,000 in revenue
- Therefore, the MER calculation is: MER = 500,000/55,000 = 9.09
Marketing Efficiency Ratio Reporting vs. ROAS Reporting
It’s important to understand how ROAS and MER differ but also how they work together.
ROAS Reporting
If you’re an ecommerce business, you probably report on three key metrics split by channel; spend, revenue, and ROAS.
If you’re looking to report on which marketing channels are driving the most immediate impact on your bottom line – reporting on ROAS makes sense. You are measuring the efficiency of your channel against its impact on revenue.
In most cases, you will usually see a higher ROAS assigned to your Google Ads campaigns. This is not a coincidence. Within the digital marketing channel mix, some channels sit lower down the funnel and convert those with high intent – namely, PPC and organic search – and others sit higher up and focus more on brand building and demand generation – paid social, PR etc.
The problem with solely measuring a channel’s success on ROAS is that if you only focus on its immediate revenue impact you are negating the impact it has on demand generation and filling the funnel.
This interdependency can be put simply:
- If there is no demand, your PPC campaigns will not perform.
- If there is no demand capturing, your paid social campaigns won’t succeed.
- Therefore, you cannot negate the importance of your paid social campaigns by measuring them on demand capture metrics.
A lot of marketers who specialise in one channel will advocate for ROAS reporting, as they don’t really care about the wider impact of digital marketing as a whole. Here at Embryo, we are of the opposite opinion and strive to not just succeed on one channel, but see the business thrive.
We are not suggesting that you disregard ROAS completely – it has a time and a place – but is best utilised alongside MER reporting.
Marketing Efficiency Ratio Reporting and Attribution
As we’ve covered, MER reporting is recommended if you want to see the full picture of how your digital marketing campaigns are driving revenue, taking into consideration all stages of the funnel. However, this is not the only advantage of MER – it can also be extremely useful when it comes to the issues of multi-channel attribution.
When reporting on channel ROAS and revenue figures, not only is there a disparity given their position in the funnel, but you also have to contend with conflicting attribution models. More often than not, this results in something like this:
PPC claims to have generated £100,000 in revenue.
Paid Social claims to have generated £100,000 in revenue.
There’s actually only £150,000 in the bank.
Because MER takes into account total revenue vs. total spending, you bypass this issue altogether.
Is MER Important For My Business?
If you have been running paid media campaigns for a while, reporting from GA or the platforms themselves, using ROAS as your success metric, and you’ve been seeing great performance – that’s fantastic! However, if you are looking to scale, you need to include an element of MER reporting.
If you’re a smaller ecommerce business with a monthly combined paid media spend of ~£30k, you’re probably going to get by fine without MER. This is because you are likely only going after warmer users to generate your revenue. As you scale and spend more, your campaigns reach colder users.
Once you start reaching colder users, your PPC starts to struggle a little and costs increase. There’s less demand the more that you spend, and users are less likely to convert if they haven’t heard of your brand before. If you have a ROAS of 10 spending £20,000 per month on PPC, it is unlikely you will still be achieving a 10 ROAS if you increase your spend to £200,000.
For your PPC to be able to scale and spend, and therefore your business’s revenue, you need to be investing in demand generation channels, such as paid social. And, to report on those accurately, you need to switch to MER reporting.
Key Takeaways
If you truly want to scale your business in 2024 using paid channels – introduce MER reporting. MER reporting will allow you to focus on the efficiency of your digital marketing campaigns, whilst taking into consideration the marketing channel mix and full-funnel approach to marketing (that you definitely should be using). It is a fairly simple calculation that can revolutionise the way you measure success, with a huge focus on scalability and growth.
If you’re looking to understand more about MER or how the switch will impact your campaigns, please get in touch. Our team of experts will be on hand to support you in any way possible.
