TPE #82: how switching to MER saved my client from bankruptcy
Feb 26, 2024Read time: 4 minutes
Hey guys, Miles here.
In this issue of The PPC Edge, I want to share the story of how one of my clients went nearly bankrupt in 2021.
And how they turned it around and became profitable again after introducing a new metric called Marketing Efficiency Ratio (MER).
The story I’m about to tell really happened, but I simplified the data to make it easy to understand and protect my client’s privacy.
Let’s dive right in!
From record-breaking revenue to nearly bankrupt.
It was August 2021.
My client just had their best month ever:
- Recording-breaking revenue.
- Recording-breaking ROAS for Google and Facebook.
- Record-breaking profit.
(The data I added below is to illustrate the issue. The numbers are fictitious and simplified for privacy reasons, but the underlying principles are real).
The ROAS on both platforms was really good and above target.
Or so they thought…
At the end of the month, my client panicked when they analyzed the total revenue and spend…
What happened: they only looked at the platform data from Google Ads and Facebook Ads.
When you do that, you will encounter huge problems and here’s why:
All ad platforms massively overattribute to themselves.
As a result, a lot of conversions will be counted double.
You can verify it for yourself: when you add the conversion values from Google Ads and Meta Ads, the total far surpasses the actual revenue you generated.
Ad platforms love to take credit for every conversion (and they did).
My client discovered they were not profitable at all…
What should’ve been a record-breaking month, turned into a money-losing nightmare.
And it’s all because they only looked at platform data.
Something needed to change, fast.
Or they would go bankrupt.
Introducing the Marketing Efficiency Ratio (MER).
The next month was truly make-or-break.
Even though they generated a lot of revenue, they could not afford to keep losing money like in August.
That’s when they switched to a new metric that solved the problem: the Marketing Efficiency Ratio (MER).
MER evaluates the effectiveness of ALL your marketing efforts.
It’s the perfect solution to working in silos.
The formula is super simple:
MER = Total revenue / total marketing spend (in a specific timeframe).
Here’s an example. Let’s assume these numbers in a 30-day period:
To calculate MER, just take the total revenue, and divide it by the total marketing costs (which also includes $25.000 in influencer spend).
$850.000 (total revenue) / $550.000 (total marketing spend) = 1.55 (MER).
With MER, you can instantly see whether or not your TOTAL marketing efforts are profitable or not.
Did MER replace ROAS?
Lots of people think MER should replace ROAS. But that’s not true.
They are similar, but have their own use cases.
The client I’m talking about uses both MER and ROAS daily, in different situations.
MER = Marketing Efficiency Ratio.
They use MER to determine the efficiency of their TOTAL marketing efforts, which can include all ad spend, but also other placements like influencers.
It’s the best metric to use when they want to quickly check if they are profitable or not on an overall level.
Generally speaking, the Performance Marketing Manager safeguards the overall efficiency by checking and reporting MER to the general management.
But the problem with MER is that it only shows you the overall efficiency of your marketing efforts, and doesn’t say anything about channel or campaign-specific performance.
That’s why they still used ROAS.
ROAS = Return On Ad Spend.
They use ROAS to determine the efficiency of specific ad channels or campaigns.
For them, based on their goals, ROAS is the best metric to use WITHIN Google Ads or Meta Ads.
But it is not the north-star metric to determine overall efficiency.
For that, they use MER.
How they bring everything together: Third-Party Attribution.
After these disastrous results, my client knew they had to change something on the attribution front.
That’s when they started using Northbeam as their third-party attribution tool.
This allowed them to create a custom attribution model that reports on MER and channel/campaign-specific ROAS.
By using Northbeam as their “single source of truth”, they solved the duplicate conversions issue they had when they only relied on platform data.
Everyone in the company now looks at the same data.
- MER is used by management to quickly gauge the overall efficiency and profitability of the marketing.
- And the performance team uses ROAS to analyze and steer on channel/campaign-specific insights.
Thankfully, they became profitable again.
After this client introduced MER as their north-star metric, the results started to pick up.
It’s not that MER magically improved the performance, but we were able to make better decisions — which led to better results.
Not only were they breaking revenue records…
They were also profitable.
And that’s how this client went from nearly bankrupt, to profitable.
MER may not be the most important metric for super-small advertisers with only 1 channel.
But it’s an absolute must if you are an advanced advertiser with lots of different marketing channels.
Using it can be the difference between being profitable, or not.
I hope this issue was valuable to you.
See you again next week!
Cheers,
Miles (& Bob)
