Why a Lower MER Isn’t Always a Bad Thing

When you're scaling your ecommerce brand, it’s natural to keep a close eye on metrics that signal efficiency. One of those is MER - your Marketing Efficiency Ratio - and it can be tempting to panic when you see that number drop. But here’s why a reduction in MER might actually be a good sign for your business.

What Is MER?

MER = Revenue / Ad Spend

At a glance, MER looks a lot like ROAS (Return on Ad Spend), but there’s an important distinction: MER looks at the performance of your marketing spend across all channels, not just isolated ones. It's a zoomed-out view that tells you how your total marketing investment is converting into revenue.

For example:

• A MER of 30 means that for every $1 you spend on marketing, you’re generating $30 in revenue.
• A MER of 15 means you’re making $15 per $1 spent.

On the surface, that drop from 30 to 15 seems like a step backward. But let’s dig deeper.

High MER, Low Profit: The Hidden Catch

Say your MER is 30 - incredibly efficient, your marketing is really effective. But your profit margin is just 6%. Here’s what might be happening:

• You’re running hyper-efficient ads that’s delivering strong results - but only at a small scale.
• Your fixed costs are high and your revenue isn’t high enough to cover these and allow for widened margins. (e.g. once fixed costs are covered, you’re left with more profit per order)
• Your variable costs could also be too high, look at your COGS, Shipping or even pricing strategy to understand why such a high MER isn’t yielding a strong profit

So while your MER looks impressive, your actual net profit is small, and you may not be building a scalable revenue engine. As you scale your marketing spend, it’s common for your MER to decrease as you target a wider audience so creating these efficiencies are key to setting yourself up for scale.

Lower MER, Higher Profit: The Scaling Sweet Spot

Now imagine your MER drops to 15. You’re less “efficient” per dollar spent - but your profit margin jumps to 20%. What changed?

• You’ve increased your ad spend, growing your revenue to a point where your fixed costs don’t weigh you down as much.
• Your cost per acquisition likely rose - but so did your overall revenue and profit.

In this scenario, you’ve traded a small, super-efficient setup for a larger, more profitable business. There is a sweet spot where you can maximise your revenue and profitability before your profit margin begins to decrease again. As you grow, run the numbers, set targets & goals and make decisions based on your goals. For some businesses like subscription businesses, it might be more beneficial in the long term to acquire as many customers as you can at a low net profit margin to then see rapid future growth, make sure your decisions are informed by both your scaling goals and key business metrics.

Why a Lower MER Can Be a Smart Move

Let’s break it down:

MER going down while profit goes up? That’s a green light for sustainable growth.

It shows you have room to move and continue scaling.

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