In this document, we outline our key marketing metrics and how we utilise them in our marketing services and reporting. It’s important to note that any good marketing agency will focus on different metrics depending on the needs of their clients and their specific engagements, but there are some throughlines.
We have a level of standardisation when it comes to metrics we generally look at to measure overall performance, as it can be easy to get lost in all of the different pieces of data, which can be confusing to clients. We believe that transparency is only as good as its ability to be understood by the client, and providing simple yet powerful metrics that the client can understand is important for any successful and sustainable marketing activation.
The table below shows a summary of our top-level marketing metrics:
| Metric | Description | Calculation Formula | Usage | Benchmark Range |
| MER (Marketing Efficiency Ratio) | Measures the efficiency of advertising investment in relation to total revenue. | MER = Total Revenue / Total Ad Spend | Cost Control | 3 – 5 |
| ROAS (Return on Ad Spend) | Measures the gross revenue generated from advertising for every dollar spent on ad spend. | ROAS = Revenue Generated from Ads / Ad Spend | Tracking Return | 2 – 6 |
| Conversions & Conversion Rate | Measures any desired action taken by a user on a website, such as purchases or form submissions. | Conversion Rate = Website Visitors / Conversion Events | Success Measurement | 1 – 3% |
As you can see, each of these metrics is used differently, but they are generally used together. Below we outline each of these metrics in detail.
Marketing Efficiency Ratio (MER)
What MER Is and How It’s Calculated
Marketing Efficiency Ratio (MER) is a straightforward yet potent metric that compares total revenue to total advertising spend. It is calculated using the formula:
MER = Total Revenue \ Total Ad Spend
Why MER Is Used
MER has become an industry standard because it provides a straightforward number that represents the efficiency of any advertising investment in relation to revenue.
How MER Is Used
MER effectively serves as a cost-control metric when looking at paid advertising. Not only is it a holistic metric, considerate to all paid marketing activity, but it also helps in evaluating the effectiveness of different advertising channels and campaigns, guiding the safe allocation of advertising budgets based on performance.
Put simply, MER can be used to determine if we are spending too much, indicating that your “ad spend is not being utilised efficiently”, but interestingly it can also be used to determine if you are spending too little.
For any client engagement, we will collaboratively set a target MER based on several factors such as industry averages, business details (E.g. size/structure/phase) and financials (E.g. COGS/margins). Once we determine an MER that’s suitable the aim is to spend as close to this number as possible.
What “Good” MER Looks Like
Higher = your ad spending is becoming more efficient, or you’re not spending enough for the revenue the business generates to sustain growth.
Lower = your ad spending is becoming less efficient, or you’re spending too much for the revenue the business generates.
It may generally be true to see lower MER as “worse”, however as covered above, an MER that’s too high can also be a concern.
Your Target MER will change over time, which is why we must keep it in focus to ensure spending remains viable. It’s important to note that MER is calculated based on total business revenue, not just revenue generated through advertising, which ROAS is more suitable for.
Industry Benchmark (range): A good MER may range between 3 – 5.
Here are some rules of thumb:
- As ad spending increases you will eventually hit ceilings where MER decreases
- Your MER will generally be lower for startups or businesses that have just started marketing
- Higher-margin product-based businesses may expect higher MER
Industry Benchmarks and Resources Several resources provide further insights and benchmarks for MER and Return on Ad Spend (ROAS) in the e-commerce sector:
- E-Commerce Industry Benchmarks for ROAS & MER – Webtopia: Offers detailed benchmarks and analysis for evaluating e-commerce marketing performance.
- How to Calculate MER – Mailchimp: Provides a practical guide on calculating MER for marketers looking to understand and improve advertising efficiency.
- Explaining MER in Marketing – Funnel .io: Offers a robust explanation of MER and how it fits into broader marketing analytics practices.
- E-commerce guide to MER – Human: Provides some great examples of how MER targets can be calculated based on cost structure.
By embracing MER, we empower our clients with the understanding to make informed decisions about their marketing in collaboration with us, ultimately driving sustainable growth and enhancing the effectiveness of their marketing investments.
Return on Ad Spend (ROAS)
What ROAS Is and How It’s Calculated
Return on Ad Spend (ROAS) is a crucial marketing metric that measures the gross revenue generated from advertising for every dollar spent on ad spend. It is calculated using the following formula:
ROAS = Revenue Generated from Ads / Ad Spend
Why ROAS Is Used
ROAS is fundamental in assessing the success of advertising campaigns. It provides a clear indication of whether the ad spend is translating into revenue in a healthy ratio. ROAS is not to be confused with Return On Investment (ROI), although they are often used interchangeably. ROI in the realm of marketing considers your total spend, including operating expenses and management costs associated with the sale against the revenue generated. This is much more difficult to calculate, as operating expenses are general and more fixed by nature – so it is difficult to delineate per channel, campaign or ad. This is why ROAS is the preferred metric – because it’s simple and scalable.
How ROAS Is Used
ROAS is a multiplicative metric, indicating how much revenue is generated, as a multiple, for every dollar spent on ad spend. It helps marketers and businesses determine which campaigns are generating the highest returns and which might require reevaluation or optimisation. Strong Ad performers, from a ROAS perspective, provide marketers with important information – it may indicate a highly desirable product or service, successful ad creative/messaging or good targeting. Campaign budgets may often be weighted in favour of high-ROAS generators to enable ad spend scaling with confidence.
What “Good” ROAS Looks Like
As with any marketing metric: context matters, a “good” ROAS varies by industry and specific campaign goals. Generally, a ROAS of at least 4 (sometimes outlined as 4x, 4:1 or 400%) may be considered a strong yet achievable goal, meaning that every $1 spent on advertising generates $4 of revenue. However, optimal ROAS targets can be significantly higher, especially in high-margin industries.
Be careful of claims from marketers of high ROAS – 1: it’s easy to claim without proof, and, 2: the details and total revenue generated matter. For example, you need to look at total volume – in isolation a ROAS of 20 sounds great. If, however, you’re only looking at $100 revenue generated ($5 spent) on a single purchase event, it’s an outlier without the necessary volume to indicate success. Give it more time and you will likely see ROAS drop as the ad continues to spend without sales generated in a 20:1 ratio, eventually equalising to its more predictable baseline.
Industry Benchmark (range): A good ROAS may range between 2 – 6.
Here are some ROAS considerations:
- Time and volume are required to build confidence when making any significant decisions using ROAS.
- A ROAS over 1 technically means you’re making more money than you’re spending on ad spend, however, because ROAS does not consider other costs associated with marketing or the delivery of sold products/services, you can still be losing money overall on a seemingly positive ROAS. It’s important to look separately at other costs to understand your ROAS baseline, your break-even point so to speak.
- ROAS will generally decrease as ad spending increases, requiring strategic planning to combat this
Industry Benchmarks and Resources
Several resources and benchmarks are available to provide deeper insights into achieving and surpassing industry-standard ROAS:
- ROAS Benchmarks by Business Type – Vibetrace: You can see quickly the variance across different types of businesses. The difference is often relevant to the cost structure, sales cycle or margins of these types of businesses:
- E-commerce: 4:1
- Retail: 3:1
- B2B: 2:1
- Services: 6:1
- ROAS Averages by Industry & Channel – First Page Sage: Looks at the latest ROAS statistics and provides rough averages based on channel and industry. Averages are not necessarily representative of “good”, and interestingly the listed numbers are quite low: between 1 – 2.
The low averages merely showcase the difficulty of advertising. Metrics like ROAS are everyone’s sought-after growth silver bullets and success stories, but do not come without trial and error, time and “wastage”. You will generally have to spend inefficiently, to test and learn, before you can spend healthily. Once you do achieve healthy ROAS, it then becomes a question of scaling which comes with ongoing, but measured, increases to ad spend and continual monitoring of relative metrics like ROAS.
Difference Between ROAS and MER
ROAS vs. MER While both ROAS (Return on Ad Spend) and MER (Marketing Efficiency Ratio) measure the effectiveness of advertising spend, they focus on different aspects of marketing performance:
- ROAS calculates the direct return generated from every dollar spent on specific advertising campaigns. It is a granular metric that helps marketers evaluate the effectiveness of particular ads or campaigns. ROAS is generally a measure of performance.
- MER measures the overall efficiency of marketing spend by comparing total revenue to total advertising spend across all channels and campaigns. It provides a holistic view of the marketing effort’s contribution to an organisation’s revenue. MER is generally a cost-control metric.
Essentially, ROAS is best used for assessing specific marketing initiatives, while MER offers a broader measure of marketing efficiency across all efforts and channels. Both metrics are valuable for making informed decisions about marketing strategy and budget allocation.
Conversions & Conversion Rate
What Conversions Are and How They’re Measured
Conversions refer to any desired action that a user takes on a website, which can range from completing an online purchase (for e-commerce) to phone calls to submitting a contact form (for B2B or service-based businesses). Conversions aren’t always associated with these important bottom-of-funnel metrics like sales or leads, but can also be defined by many other metrics such as:
- Specific page views (e.g. thank you page, contact us page)
- Time on page (set by a threshold)
- Resource downloads
- Link clicks
A conversion is generally an event or action, defined by the marketer and/or business as something that aligns with the goals of a particular campaign, ad or engagement. The measurement of conversions depends on the setup of conversion tracking in ad platforms and analytics tools like Google Analytics.
There are multiple ways to increase the number of conversions you’re driving, such as improvements to targeting or better messaging, but one of the surefire ways to do so is to improve your conversion rate. Because of the dynamic and subjective nature of conversions, conversion volume is more difficult to benchmark. This is why we often instead use conversion rate, which is measured as:
Conversion Rate = Website Visitors / Conversion Events
Why Conversions Are Important
Conversion metrics are critical because they directly measure the effectiveness of marketing efforts in generating desirable actions that lead to sales. They help in understanding user behaviour across various points of the marketing funnel and the efficacy of different messaging and channels.
How Conversion Rate Is Used
Conversions are used to assess whether marketing is doing what it’s supposed to be. Conversions should be directly aligned with business and marketing goals. Any form of marketing activity should have a definition of success, and conversions should measure this. They help businesses to:
- Identify which marketing tactics are driving valuable customer actions.
- Optimise the performance of your marketing campaigns and ads.
- Make decisions about things like user experience, messaging, creative & targeting to improve conversion rates.
What “Good” Conversion Rates Look Like
“Good” conversion rates vary widely by industry and the type of action being measured. For e-commerce, an average conversion rate might range from 1% to 3%, whereas for B2B, the conversion rate for leads might be lower due to the longer decision-making process.
Industry Benchmarks and Resources
- Conversion Rates by Industry – Wordstream: Offers insights into average conversion rates for B2B websites along with strategies for improvement.
Understanding and improving conversion rates is pivotal for maximising the efficiency of marketing efforts and directly impacts the profitability and growth of a business. Through targeted improvements in user experience and tailored marketing strategies, businesses can significantly enhance their conversion rates.
In conclusion, understanding and implementing key marketing metrics such as MER, ROAS, and Conversion Rates is crucial for any marketing agency aiming to drive sustainable growth and enhance the effectiveness of marketing investments.
These metrics provide a clear, quantifiable means to evaluate the success of advertising efforts, optimise campaign performance and ensure that every dollar spent is contributing positively to the business’s bottom line.
By setting clear benchmarks and continuously monitoring these metrics, we can make informed decisions that not only improve any current marketing strategies but also align future initiatives with overall business objectives. Embracing these metrics will empower both marketers and clients with the insights needed to achieve and surpass their marketing goals, fostering a cycle of continuous improvement and strategic success.
