Understanding the Marketing Efficiency Ratio (MER) in Relation to Acquisition & Growth
Your Acquisition Marketing Efficiency Ratio (aMER) is the pivotal metric for gauging the profitability of your customer acquisition strategy.
aMER, or simply 'MER' as is a direct indicator of how effectively marketing investments are generating revenue or profit.
What is MER?
MER is calculated by comparing the total marketing expenditure against the revenue generated from these efforts.
It provides a clear measure of the return on investment (ROI) from marketing activities.
A higher MER indicates a more efficient marketing strategy, where less money is spent to generate more revenue.
Example of MER Calculation – Marketing Efficiency
Consider a hypothetical ecommerce store.
Let's analyze its daily performance data which includes;
- net revenue
- the number of new customers
- new customer revenue
- total marketing spend.
For instance, if the store's total revenue (subtotal) for a day is $23,000 and the marketing spend is $17,000, the MER would be calculated as follows:
MER = Total Revenue / Total Marketing Spend
MER = $23,000 / $17,000 ≈ 1.35
This means that for every dollar spent on marketing, the store earns approximately $1.35 in revenue.
Distinguishing Between MER and aMER (Acquisition Marketing Efficiency)
While MER provides an overall efficiency ratio, aMER focuses specifically on new customer acquisition.
aMER compares the revenue generated from new customers to the total marketing spend. If the spend was $117,000 and the new customer revenue was $95,000, the AM would be:
aMER = New Customer Revenue / Total Marketing Spend
aMER = $95,000 / $117,000 ≈ 0.81
An aMER less than one indicates that each dollar spent on acquiring new customers is returning less than a dollar in revenue, highlighting inefficiencies or the need for strategic adjustments.
Importance of Analyzing Both MER and aMER
It's crucial to monitor both MER and aMER to understand not just the overall marketing efficiency but also how effective the marketing strategies are in attracting profitable new customers.
Discrepancies between these metrics can reveal insights about customer behavior and the effectiveness of different marketing tactics.
For example, a high overall MER with a low aMER suggests that while the marketing strategy is generally effective, the approach to acquiring new customers specifically may need improvement.
This could be due to targeting issues, the offer presented, or the channels used.
Strategic Adjustments for Optimizing Marketing Efficiency
To enhance both MER and aMER, ecommerce businesses can:
- Refine Targeting: Improve customer targeting by using data-driven insights to reach potential customers who are more likely to convert.
- Optimize Ad Spend: Allocate budget to high-performing channels and campaigns. Regularly review and adjust spending based on performance data.
- Enhance Customer Value: Increase the average order value (AOV) through upsells, cross-sells, and improved product offerings to make the most out of each transaction.