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What is MER and why does it matter?

Read Dan Howe’s perspective on ROAS in 2022 and how the Marketing Efficiency Ratio (MER) is overtaking the once golden metric as a source of truth for eCommerce brands. As a General Manager at Reload with over 9 years experience in digital marketing, Dan’s industry knowledge can help businesses make sense of multi-channel eCommerce analytics.

For so long, eCommerce brands have rightly (or wrongly) relied on return-on-ad-spend (ROAS) to monitor performance and scale channel profitability. Marketing managers would see if a certain channel had a good ROAS and immediately give it more dollars, sit back, and reap the rewards. 

However, in a world that has seen Apple crackdown on app tracking, which cost Facebook a rumoured $10m USD this year, ROAS has become less accurate. We are also coming closer to the ‘death of the cookie’, meaning ROAS just can no longer be trusted.

So, what can I use instead of ROAS?

The bad news – there is no one direct replacement for ROAS.

The good news, the 3 alternatives outlined below will give you more visibility than ever and allow you to pull the right lever for your eCommerce business depending on your stage of growth.

So what are these mythical alternatives:

  • Marketing Efficiency Ratio (MER)
  • New Customer Return On Ad Spend (ncROAS)
  • Profit On Ad Spend (POAS)

ROAS allowed you to zoom in on a channel to check on its performance, if we use an analogy, a tree if you will. The issue, ROAS neglected the overall health of the forest, meaning it lacked the big picture view.  Just because a few trees had been thriving didn’t necessarily mean the forest or business was in good health.

These metrics combined can fix this. 

MER - Marketing Efficiency Ratio

The marketing efficiency ratio formula is simple. 

Sometimes known as eROAS, this metric is your short-term health.

 I’m spending $x on ad spend, and the store as a whole is making $x

Some would say this is better than ROAS already, which was never any good at showing you the impact of ad spend outside of last click attribution.

MER allows us to keep an eye on the efficiency of our spending, to make sure we continue to be profitable and also have the correct channel mix. In the current eCommerce climate, we recommend a MER goal be established for all businesses, allowing us to assess the value of marketing efforts and pivot tactics if needed. 

We know that short-term health isn’t everything, but if we can track MER every month, and obtain a solid grasp on what marketing strategies are engaging customers, long-term business health will follow.

ncROAS - New Customer Return On Ad Spend

If you’d rather not intensely track the marketing efficiency ratio every month, ncROAS is the metric for you. This metric focuses more on the ‘long-term health’ of your business – chasing new customers. 

However, new customers are not particularly efficient when it comes to ad spend. As a result, it’s critical for eCommerce brands to monitor how much it’s costing to acquire a new shiny customer. ncROAS allows us to do this and ensure we don’t drop below 1.0 – meaning we would be losing money on that first customer purchase. 

It’s important to note that Google Analytics doesn’t know this data – instead, it needs to be worked out from store data via Shopify or other eCommerce platforms.

POAS - Profit On Ad Spend

This metric looks at how profitable the entire ecosystem or forest is – yes, remember the forest? 

If I minus all my inventory, shipping, handling, ad costs, and even agency fees, am I making a profit? This seems self-explanatory, but so many brands in recent years have neglected this number – it’s a critical piece of the picture. 

So 3 really is better than 1……

So, what should I do with MER, ncROAS and POAS?

The fact is MER should be considered the best for measuring marketing performance and profitability. It’s your bottom-line metric, and where we should begin when developing any new marketing strategy. Incorporating MER, ncROAS, and POAS into your eCommerce analytics means you are prioritising the short and long-term health of your offering – something that so often gets overlooked. 

But, if you’re slightly confused about where to take MER, ncROAS, and POAS results for your eCommerce business there’s no harm in talking to a digital expert.

Inform your digital marketing strategy with advanced metrics.

If you’d like to know how the Marketing Efficiency Ratio can help your brand reach the next level, get in touch with a Reload Media team member today. 

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