MER vs allowable MER — are you actually overspending?
Everyone knows their MER. Almost nobody knows their allowable MER — the number that tells you whether you’re actually spending too much, too little, or just right.
Jakob Sperber
Director
Marketing
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MER — Marketing Efficiency Ratio — has become one of the most popular top-level metrics in ecommerce. Total revenue divided by total marketing spend. One number that tells you how efficiently your entire marketing engine is running.
The problem isn’t MER itself. It’s that most brands track MER without knowing what their MER should be. They see a 5x and feel good, or see a 3x and panic. But without an allowable MER derived from their actual margin structure, they’re flying blind.
What is MER?
MER = Total Revenue ÷ Total Marketing Spend
Unlike ROAS, which is typically calculated per campaign or channel, MER looks at the entire business. All revenue — paid, organic, email, direct — divided by all marketing spend. It’s a blunt instrument by design. It doesn’t try to attribute revenue to specific channels. It just asks: for every dollar we spend on marketing in total, how many dollars of revenue come in?
This bluntness is actually MER’s strength. In a world of broken attribution and cross-channel influence, MER sidesteps the attribution problem entirely. But it only works as a decision-making tool if you know your target.
What is allowable MER?
Allowable MER = 1 ÷ (Marketing Spend as a % of Revenue you can afford)
Your allowable MER is derived from your contribution margin. It answers: given my margin structure and fixed costs, what’s the minimum MER I need to maintain to hit my profit target?
How to calculate it
Start with your blended CM2 percentage. This is your margin after COGS and variable costs, as a percentage of revenue. Let’s say it’s 55%.
Subtract your fixed cost percentage. Fixed costs (rent, salaries, software) as a percentage of revenue. Let’s say 20%.
Subtract your target profit margin. What do you want to keep? Let’s say 10%.
What’s left is your allowable marketing spend as a percentage of revenue. 55% − 20% − 10% = 25%.
Invert it to get allowable MER. 1 ÷ 0.25 = 4x.
In this example, your allowable MER is 4x. If your actual MER is above 4x, you’re hitting your profit target. If it’s below 4x, you’re overspending relative to what your margins can support.
The insight most brands miss
Here’s the thing that surprises founders: your MER being higher than your allowable MER might mean you’re underspending, not winning.
If your allowable MER is 4x and your actual MER is 7x, you have a 3x gap. That gap represents marketing headroom — money you could be spending to acquire new customers while still hitting your profit target.
A brand running at 7x MER when their floor is 4x is leaving growth on the table. They’re prioritising margin over scale. Sometimes that’s deliberate (cash-constrained, seasonal planning). Often it’s because they don’t know what their allowable MER actually is, so they play it safe.
Conversely, a brand running at 3.5x MER against a 4x allowable is overspending. Not dramatically — but consistently operating below the profit threshold will drain cash reserves over time, especially when combined with inventory cycles.
Why a static MER target doesn’t work
Your allowable MER isn’t a fixed number. It shifts based on:
Product mix. If you sell more low-margin products in a given month, your CM2% drops and your allowable MER goes up (you need more efficiency).
Discount periods. BFCM and sales events compress margins. Your allowable MER during a 30%-off sale is very different from full-price months.
Fixed cost changes. Hired a new team member? Your fixed cost percentage shifts and so does your allowable MER.
Growth targets. If you’re willing to accept a lower profit margin temporarily to invest in growth, your allowable MER drops — giving you permission to spend more aggressively.
Smart operators recalculate their allowable MER monthly, or at minimum quarterly. It’s not a set-and-forget metric.
MER vs channel-level ROAS
MER and channel ROAS serve different purposes:
MER is your macro health check. Is the overall marketing engine running within the margin the business can sustain?
Channel ROAS (or better, POAS) is your micro optimisation tool. Which channels and campaigns should get more or less budget?
You need both. MER without channel analysis tells you whether you have a problem but not where it is. Channel ROAS without MER lets you optimise individual campaigns while the overall system bleeds money.
How to use allowable MER in practice
Calculate your allowable MER at the start of each month based on projected product mix, planned promotions, and current fixed costs.
Track actual MER weekly. If you’re consistently above allowable, you have room to scale. If you’re below, diagnose whether it’s a spend problem, a conversion problem, or an AOV problem.
Use the gap to make spend decisions. MER at 6x against a 4x floor? Test increasing spend by 15–20% and watch whether MER compresses toward the floor or holds.
Adjust for seasonality. Pre-BFCM, you might deliberately run closer to your allowable MER to acquire customers who’ll convert during the event. Post-BFCM, tighten up as margins normalise.
The bottom line
MER without an allowable target is a compass without a map. You know which direction you’re heading, but you don’t know if it’s the right one. Calculate your allowable MER from your margin structure, and suddenly every spend decision has a clear framework.
