How to measure the efficiency of a new marketing campaign? Part I

Marketers constantly ask themselves, "Is this working?" It's more important than ever to ensure that marketing dollars impact our bottom line. That's where the Marketing Efficiency Ratio (MER) comes in.

But, what exactly is MER?

• MER stands for marketing efficiency ratio and measures the effectiveness of marketing efforts.
• It calculates the balance between the marketing budget and the outcomes achieved.
• The marketing efficiency ratio (MER) calculates the overall impact of your marketing campaigns by dividing your total sales revenue by total marketing expenditure (in a given period).
• In layman's terms, MER removes the guesswork and tells you how much money your business is making from your marketing efforts.?
• The marketing efficiency ratio (MER) measures how well your marketing strategy or campaign performs holistically.
• MER calculates the profitability of marketing efforts by determining how much money is spent to achieve results.

Why is MER relevant?

• MER is important for strategic planning and can improve marketing efficiency and ROI.
• Understanding MER involves understanding the balance between resources spent and the results obtained, or more specifically, how much a company invests in marketing and how much it gets back in terms of increased sales or other desired outcomes.
• While most marketing actions have an endpoint goal of profits, MER may also measure indirect profit generators, such as brand awareness, customer loyalty, customer satisfaction, and market share growth.

How to Calculate the Marketing Efficiency Ratio

Calculating MER involves assessing the return on investment (ROI) of your marketing campaigns and activities. To calculate MER, follow these steps:

1. Determine your marketing spend: Begin by gathering all the costs associated with your marketing efforts. This includes expenses for advertising, promotions, content creation, employee salaries, digital marketing software, and any other resources allocated to marketing.
2. Calculate revenue from marketing activities: Calculate the sum of the total revenue generated from marketing activities. This can involve tracking sales originating from specific campaigns. Marketing analytics tools can help you keep track of these numbers.
3. Determine the amount of time over which you want to measure: This could be a week, month, quarter, year, or campaign lifetime.?
4. Compute the marketing efficiency ratio (MER): Divide the revenue or sales generated from marketing efforts by the total marketing costs.?

For example, a company spends $5,000 on marketing its products and generates $25,000 in sales.?

MER = $25,000 (Total sales/revenue) ÷ $5,000 (Total marketing cost) = 5

In this case, the MER is 5. The company generated $5 in revenue for every $1 spent on marketing. Generally speaking, a marketing efficiency ratio of 5 or above is considered “good.”?

MER versus other measuring ratios

So now, is MER the only measuring ratio to determine if your given marketing campaign is working? and the answer is no, there is another, and it's called ROAS.

And what exactly is ROAS? It stands for Return On Ad Spend, which is a great metric for specific campaigns.

Why is ROAS relevant?

• Because it measures individual marketing campaigns and their revenue.
• Also measures short-term results per channel.
• And finally, helps determine optimal advertising channels

And when we compare the Pros and Cons of both measuring ratios (MER and ROAS), this is what we get:

MER Pros

• Shows the big picture of your marketing efficiency
• Aids budgeting

MER Cons

• Can be diluted by high-performing outliers
• Doesn’t isolate campaign performance

ROAS Pros

• Highly specific, great for campaign-level adjustments
• Directly ties expenditure to revenue, making it easier to measure direct impact

ROAS Cons

• Can miss how channels play together to win
• Might not account for long-term brand building or customer lifetime value
• Doesn’t factor in channel attribution

What is the difference between MER and ROAS?

Return on Ad Spend (ROAS) measures revenue earned from total spending on advertising campaigns. It helps identify the effectiveness of your ad campaigns but doesn't look at your overall performance.

On the other hand, MER is a broader metric and shows the overall picture of your marketing campaigns.

Conclusion

The conclusion is that it's better to use both metrics when you're running a marketing campaign. One metric covers what the other can't, so by utilizing both metrics, you ensure a well-rounded understanding of the impact and efficiency of your advertising efforts.

In my next article (Part II) I will briefly address how can AI improve MER, Applications of MER in different marketing strategies, also the challenges marketers face when maximizing MER, and how to overcome them.