Marketing Expense Ratio (MER)
The Marketing Expense Ratio (MER) is a financial metric that assesses a company's total marketing efficiency. It's calculated by dividing the total marketing expenses by the company's total revenue or sales. The MER provides insights into how much a company invests in marketing relative to its revenue. A higher MER indicates a larger proportion of revenue being spent on marketing activities, while a lower MER suggests that marketing expenses are relatively lower in relation to revenue. This ratio helps businesses evaluate the cost-effectiveness of their marketing efforts and allocate resources accordingly.
For example, if you spend $10,000 on advertising and make $50,000, your Marketing Expense Ratio (MER) would be 20%. This means 20% of your total revenue was spent on marketing.
Understanding and continuously tracking your MER allows you to analyze and measure your marketing efficiency over time. It also provides a more accurate and holistic measurement by considering all marketing efforts and reducing the risk of skewing caused by data attribution and touchpoint overlap. This allows marketers to better understand the outcome of changes and optimizations from the top down.
How to use the MER Calculator
The equation to calculate MER is as follows:
Total Marketing Expense / Total Marketing Revenue
The total marketing expense should include any costs associated with advertising, and all inputs should be from the same time period.
Tracking MER over time will allow you to identify trends in your efficiency and make better decisions about the changes that will drive performance.
Simple Marketing Return on Investment (ROI):
Using the same input data, we can also calculate a Marketing Return on Investment. This is a formula that measures the total investment return on marketing after deducting marketing costs. The calculation is as follows:
(Revenue – Marketing Cost) / Marketing Cost
This metric is valuable in determining the investment return on marketing activities. A higher Marketing ROI means the marketing activities are more efficient and create more investment returns. While this metric doesn’t take into account other costs associated with selling a product or service, it is a good indicator of marketing success.
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