What is MER

Marketing Efficiency Ratio – in this case how WE are looking at MER is from the entire business.

If you spent $10,000 on ALL advertising/marketing  and made $20,000 (top line rev) “MER” is 2.0.  

This is NOT channel specific.

This is the business as a whole and something you want to start monitoring to see a more holistic view of how the company is performing. 

Marketing efficiency ratio measures the overall performance of your digital marketing efforts: Total revenue divided by total spend.

Total spend can include (Affiliate placements, Affiliate Commissions, Google and Facebook ads spend, Klaviyo monthly cost to platform etc…)

How are we calculating?

Again this is simply the cost of ALL their marketing spends (excluding agency management fees) by topline revenue generated.

Visualizing MER trends 

Having visual graphs like the one below can help you understand how you are trending with MER. The ultimate goal would  be to keep MER relatively the same MoM while scaling. However, it is normal to see MER trend down during periods of scaling, this is why it is important to understand an MER “floor”

What Is CAC

Customer acquisition cost – what is it actually costing you to obtain a customer through marketing.

You can calculate this number by taking total marketing spend and dividing it by the total number of new customers that Shopify is reporting on 

It is important because it tells you how much you need to spend to get someone to buy one of your products. 

How is CAC different than CPA?

CAC is the cost that it takes to acquire a brand new customer for the first time.

CPA in-platform is different because you cannot always be 100% positive that that purchase was from a brand new customer- however, we can assume that in our A+SC if they are set up correctly. 

‍How are we calculating?

Pulling directly from platforms that we are looking at. (Cost of Sales and Marketing divided by the Number of New Customers Acquired). 

Looking At CAC/CPA 

When would you look at CAC/CPA vs. ROAS? 

Subscription based clients are a great example of when you would look at CAC/CPA and compare it to lifetime value to determine an estimated lifetime ROI. 

You would almost never want to use in-platform ROAS for subscription brands because it is usually a low price to entry and they see the actual ROI over that customer’s lifetime.

What Is LTV

Lifetime value – what is the customers value of their lifetime as a shopper of that brand? 

If I purchase a pair of Nikes and over my lifetime I purchase 10 pairs at 100 dollars a pair, that LTV is $1,000. It cost them $100 to get me to buy the first time.

At first glance in a platform like Facebook that’s 1x or 100% ROAS.

In reality, they got me hooked and I spent $1,000 over my lifetime on that companies products.

So that $100 initial cost made them 10x their money. 

How are we calculating?

‍ Using the LTV calculator -> CALCULATOR (always make a copy of the sheet)!!

‍

LTV Pulling DATA FROM GA

From GA we simply need the USERS total during the correct date range (long lookback window to accurately find lifetime value).

LTV Pulling DATA SHOPIFY

In Shopify we need to pull TOTAL SALES, TOTAL ORDERS and CONVERSION RATES.

These dropped into our calculator will spit out the correct numbers.  

‍

LTV Discussion

So now, we can see that post return data, our lifetime value is just under $270 and people typically buy 2 pairs over their time as a customer of the brand. 

‍

Now instead of looking at your brand and seeing a 1x ROAS when it costs you $100 to acquire a customer, you can see that typically users are purchasing 2 times and we are closer to a 2.7x ROI from our initial conversion. 

‍

Why These Conversations Are Important 

It is extremely important to know when to be focused on ROAS and when to be focused on CAC/CPA.

CPA and CAC compared to LTV should be the main KPIs you focus on since the money really comes from the lifetime of the customer. 

It is very important to be constantly be looking at MER because it gives a better holistic view of how the company overall is doing.

With platform metrics becoming more unreliable, you could find that Meta has a down month in platform but the company as a whole is still performing above their target MER.

Without knowing MER and only looking at platform numbers, you can pull back spend when you really don’t need to be.

It is a LOT harder to pull back spend and then ramp back up then to maintain.

‍