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MER is calculated by dividing the total revenue by the total media spend within a specific period. Here's how it works.
Example
$5M Revenue ÷ $1M Spend = 5 MER
This includes all revenue generated from sales during the measurement period.
Accurate revenue tracking is essential to ensure that all income is accounted for, whether it’s from direct sales, subscription fees, or other revenue streams.
Some marketing teams prefer to limit the scope to include only revenue which was influenced by media spend. This approach can work well, but can also be harder to calculate or attain.
This includes all expenditures related to media:
Costs for online ads on platforms such as Google, Facebook, Instagram, LinkedIn, and other digital channels.
Expenses for TV, radio, print, and outdoor advertising.
Costs associated with paid social media campaigns.
Payments made to influencers and brand ambassadors for promotional activities.
Costs related to creating and distributing marketing content, including video production, graphic design, copywriting, and other creative efforts.
Once you have the above factors compiled, the formula to establish the efficiency ratio is very simple!
For CMOs and VPs of Marketing, MER provides a holistic view of the effectiveness of media investments.
It consolidates the performance of various media channels into a single metric, making it easier to assess overall media strategy.
MER allows for comparative analysis across different campaigns and media channels.
By examining MER across various initiatives, marketing leaders can identify which channels and campaigns are driving the highest returns and optimize their media spend accordingly.
Understanding MER is crucial for budget optimization. A high MER indicates effective use of media spend, while a low MER may signal inefficiencies that need addressing.
This insight helps in reallocating budget to maximize ROI and improve overall marketing efficiency.
MER serves as a valuable tool for strategic planning and forecasting.
By analyzing historical MER data, marketing leaders can predict future performance, set realistic budget targets, and develop more effective media strategies.
Consider a retail company with the following data for a quarter:
This means the company generates $4 in revenue for every $1 spent on media.
Upon deeper analysis, the CMO finds:
From this analysis, the CMO observes that while all channels except TV Advertising have the same MER, Content Marketing delivers the highest efficiency.
This insight leads to reallocating budget towards Content Marketing and optimizing TV Advertising efforts to improve media efficiency.
For experienced marketing professionals, the Media Efficiency Ratio (MER) is a vital metric that offers a consolidated view of media spend effectiveness.
It helps in measuring performance, conducting comparative analysis, optimizing budgets, and strategic planning.
By deeply understanding and leveraging MER, CMOs and VPs of Marketing can drive more effective media strategies, maximize ROI, and significantly enhance the overall success of their marketing efforts.
