MER is the new measurement Dejour among online advertisers
Many folks are touting it as the replacement to
Facebook ROAS
For those also running Google Ads and email, along with TikTok ads.
MER, as a holistic daily score,
has been pitched as the new best way of thinking.
I couldn't disagree more
Let’s dive deep into that and see where this actually breaks down, and why it’s really no better than Facebook ROAS or any other vanity metric
First off, thank you so much for being here
I know you could be spending your time anywhere on the Internet and I take absolute joy in the opportunity to be a tool in the further development of your business
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OK, let’s dive in
So MER, often referred to as Marketing Efficiency Ratio, is a very familiar measurement Its total revenue today divided by total spend
Think of it as the "ROAS for your entire business"
I know that sounds super helpful
Until we dive into it and try to make use of this information
Problem Number 1:
There’s no context to this data
MER doesn’t let us know whether or not we are running a profit,
or able to pay our bills,
meeting any business objectives,
or what the effect of marketing will have on our business tomorrow,
next week, or over the lifetime of our customer
The real issue here is that one number doesn’t really tell us anything
Often I’ve heard that MER is more important than ROAS because it’s inclusive of all channels
This is totally true
But sadly, it raises way more questions than answers & ultimately isn’t very valuable
So let’s dive into what that really means
Problem number 2:
This isn’t actionable data
If your MER or ROAS is a 3X, that sounds like a good thing right?
Well, we don’t actually have any idea by that number alone
Maybe our goal is a 1.8x, because that means that we are paying for the cost of goods & advertising cost to acquire a sale
On the surface that sounds great
But, what do we do with this information?
If your MER is better than your target, what are you going to do tomorrow?
Maybe you want to spend more on Facebook
Maybe you want to send out even more emails
Maybe you’re willing to dive deeper into TikTok
Maybe you want to just put that extra money in your pocket
The problem here is that that single number doesn’t actually tell you what to do anywhere
in your business, other than maybe pat yourself on the back for hitting a vanity metric
Problem number 3:
We are missing far more information that is actually far more important
How many returns did you get today?
What is the LTV on your transactions today?
How many of your customers are returning today?
What was your cost to acquire a sale for one product versus another?
Were today’s results repeatable?
Where should you invest these profits above cost?
MER or ROAS doesn’t actually give us any of this information
These are actually far more important questions that every 8 and 9 figure brand that is scaling in a stable and projectable fashion knows on a daily basis
It really comes down to understanding what is actually important, and what metrics don’t provide any value
The Equation that actually matters:
(CPA + COGS) divided by LTV
Every single transaction that your business receives is one of two things
Either it is a new customer journey, or a continuation of a customer to a net LTV
Revenue growth is a direct output of an increased margin between CPA and LTV or an increased volume of customer journeys
Many DTC brands are now sophisticated enough to operate on an LTV T
his basically means that today’s efficiency should be measured by the volume of new journeys and volume of continued journeys, indexed against the value of each of these transactions in relation to the allowable margin between cost and lifetime value
So why is MER not actually important?
And why is MER so popular?
MER, and ROAS, provide at best, and out of context, a datapoint that reflects a snapshot in time
This information is neither actionable nor telling of any real business insight
Especialy if the advertiser expects to see any customer more than once
However, MER, and ROAS, are indeed extremely popular for one simple fact…
Facebook took away longtail delayed Attribution, and this forced Marketers & Brands to elevate their measurement from something completely worthless to a vanity point that at least has Day to Day merit, as a report card on daily performance
So if you are wanting to maximize the growth potential of your brand
If you want to have a sustainable scale…
You need to begin to measure (CPA + COGS) divided by LTV, and volume, by each offer
This actually tells you the potential revenue of every transaction instead of focusing on one day at a time with no view to actionability or lifetime value
Final point:
MER has no reflection on incremental lift
Incremental lift is the most important discipline in all of marketing
~Charley T
Disrupter School
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