Not enough marketing teams spend the time to get aligned with the boss on a north star metric and it needs to havoc and stress...and nobody wants that!
Ask a team for the metrics they keep an eye on and a tornado of KPIs gets unleashed: Revenue, ROAS, Click rate, conversion rate, AOV, CAC, ROI, Net Profit, Leads...the list never ends.
Those KPIs all have a time and place to help grow your business - but what about an overall north star metric?
A number that tells everyone "Before we all drown in spreadsheet hell and end up with a headache and no actual sense of satisfaction or achievement, is there a number that marketing can look at and say 'We are doing great, spend more', or 'Oh Crap, we are in trouble'"?
I've come around to MER (marketing efficiency ratio) being that North Star metric.
MER = all company revenue / marketing spend
If your company revenue is $700,000, and you spent $100,000 on marketing, then your MER is 7.
It solves for tangled customer journeys, customers bouncing from a Facebook ad to Amazon, and all that messy PR/Podcast/live event traction that otherwise can be a bear to figure out.
One I settled on MER as a North Star however, the question becomes, what's a good MER? What should my MER be?
A mistake is to set a single number as your goal MER. Because it fluctuates, and if you are just over or under the goal, it might not lead to action, clarity, or insight.
If a KPI doesn't lead to action, clarity, or insight, what is the point of looking at it!!!!
The secret to unlocking MER as a helpful North Star Metric is to think of 3 psychological buckets:
1. Above what MER value would make me ecstatic and eagerly want to increase our marketing budget?
2. Below what MER value would make me very stressed and looking to cut our marketing budget?
3. In between values 1 & 2, would I be able to keep the same marketing budget?
Once you have those 3 questions answered, you have your MER range set.
Here's an example of the mindset of how to answer each question:
1. Above what MER value would make me ecstatic and eagerly want to increase our marketing budget?
If I can make in excess of $4 in total company revenue for every $1 I spend on marketing, I'd be giddy and want to put the pedal to the metal and scale this baby!
2. Below what MER value would make me very stressed and looking to cut our marketing budget?
If we can't make at least $2 in total company revenue for every $1 I spend on marketing, it would be a horror show and we'd have to cut marketing budget and risk revenues slowing down.
3. In between values 1 & 2, would I be able to keep the same marketing budget?
Well actually - now that I think about it - a 2 MER is not good enough and I'd eventually cut budget. My lower range limit is 2.5
We now have a MER range: 2.5 on the low end, 4 on the high end. What do we do with that?
When MER is above the upper range, in this case 4, we are raising the budget.
I'd advise at least 10%. Allocate between TOF/MOF/BOF at the same ratio of ad budget you currently have setup (I hope TOF gets at minimum 50%...).
When MER is below the lower range, in this case 2.5, we are lowering the budget...and getting to work!
A lot of work to be done here - first lower the budget. But then dig into everything: Are your TOF audiences truly TOF or is AI retargeting people? Do you need better ad creatives? Is your conversion rate slipping? Is your offer stale or not converting? Work on where the pain is most acute.
When MER is between the lower and upper ranges, in this case 2.5 and 4, keep the budget the same, and optimize towards growing above 4.
Check the trends to see if you are trending up or down for campaign new visitors, nCAC, and ROAS. Fix creatives, targeting, and offers depending on what you see (this is multiple future blog posts for all the steps involved).
Alignment on a north star metric gives everyone a visible goal that cuts through the chaos.
MER is a great north star metric for showing that top line business health from a marketing perspective is being achieved.