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Imagine sitting in a boardroom, and a confident agency representative presents your quarterly marketing performance. They have analyzed your data with a complex model that indicates some positive trends in your results. It sounds impressive.
However, when you look at your financial reports, you see a different picture: earnings were at an all-time low this quarter. Despite their reassurances that "you need to spend today to grow tomorrow," something doesn't feel right. You don't fully understand how they measure performance.
Does this scenario sound familiar? For many marketers, it is all too real.
To figure out the best path forward in these situations, we spoke with Chris Fraser, a digital advertising expert from Intentional, an agency based in Melbourne, Australia. We covered some of the challenges that keep digital marketers awake at night, including measuring marketing efforts, the future of digital advertising, and the difficulties agencies face when working with clients. Chris also offered a glimpse into Intentional's operational structure.
Chris Fraser, managing director of Intentional
Perspectives on the hottest digital advertising topics
Marketing efficiency ratio (MER) and the role creatives play in digital advertising are top of mind for most digital marketers these days. For those unfamiliar with MER, it involves calculating your marketing efficiency by dividing your total revenue by your total ad spend. In Chris’ view, this metric is best used to gain a holistic view of your performance.
“You cannot blindly trust the ad platform data only,” said Chris. “Without a shared MER view, it’s difficult to see how you’re doing overall."
Based on this approach, Intentional has built its own dashboards to calculate MER using Funnel by connecting directly to Shopify and ad account data. They have created custom dashboards in Looker Studio that use Facebook, Google, TikTok, and Pinterest APIs to display the best-performing ads with thumbnail images and performance data.
There is a distinct strategy underlying Intentional’s use of MER over other methods like marketing mix modeling (MMM) or attribution models. For instance, many agencies have flocked to new attribution tools for marketing measurement. While these platforms have gained popularity for how they mix data, Chris believes you need to test these platforms against your own data. The way they mix the data is hugely favorable to ad platforms at the expense of organic and direct activity.
“It can be difficult for marketers and agencies to fully comprehend the marketing mix models of some of these platforms,” Chris said. “There is a desire to find the magic bullet, a new single source of truth. Yet the reality is the only single source of truth is your own data.”
Instead, Intentional focuses on analyzing the net results without mixing data. They prefer a straightforward approach to present the data as it is, without any alterations. With regard to other solutions, they don't judge whether the results are good or bad–they just prefer to run a practice of experimentation to determine the best course of action for their clients.
With that said, who is MER good for?
Chris believes that MER is best used by marketers who understand the value of their data, yet take it with a grain of salt.
“Agencies often want a get-out-of-jail-free card,” said Chris. “If the data looks bad, an attribution tool can make them look better. That might be great, but is it ethical, and will it lead to you truly helping your client?”
Chris values honesty and transparency with clients, so he prefers to present data as it is – for better or worse. For instance, he might say, "Here is your Looker Studio using Funnel data. Let's work together to understand what is happening. Did your MER improve when we spent $10K more on Facebook or when we launched that new TikTok ad?"
That being said, Chris believes that there is no singular answer for every marketer. Whether adopting Intentional’s approach, or relying on tools like North Beam and Triple Whale, they are all slightly different models - each with its pros and cons.
What worked before in performance marketing, doesn’t anymore
A current challenge in digital advertising is the so-called "performance plateau."
Businesses that started during the Facebook Ads era didn't focus on building their brand. Instead, they relied on leveraging the platform’s tracking pixel to continuously grow by simply spending more solely on conversion-based advertising. With the onset of stricter privacy regulations and the deprecation of third-party cookies, though, this pinpoint targeting focused solely on conversion is becoming exponentially more difficult.
In addition to these ad industry dynamics, consumer spending has seen a slowdown globally. This means consumers are becoming more cautious and need additional incentives beyond a simple “buy now” message to part with their cash.
This means brands, especially in the e-commerce space, need to think differently about their online spend. They simply can’t rely on the “more ad spend = more revenue” model of the last few years–it’s no longer feasible today.
The shortcomings of MER
The changes in market and industry dynamics have demanded a change in how businesses measure performance. Marketing efficiency ratio helps fill that void with an easy-to-implement metric. However, it’s not without its limitations.
Marketing science around the blend of short-term and long-term investment is much debated. Intentional’s objective is typically to attain short-term results that can help fund long-term growth initiatives. This means the agency tries to optimize the full funnel while working with its clients to determine which part of the funnel deserves more or less investment.
While MER is good at showing short-term results, it can struggle with long-term ones.
“The only way to maintain a MER at a specific target rate, is to focus most of your spend on the channels that will deliver that result now,” explained Chris. “That could put you in an immediate return on investment scenario, which might not always be the best way forward for long-term brand building.”
Despite it being an imperfect calculation, Chris believes that digital marketers can easily understand and implement this strategy.
MER is a guidepost
While many brands would like to utilize advanced techniques like MMM to optimize their marketing investments, it’s simply not suitable for every brand. For instance, while major multinational consumer brands implement 360-degree campaigns, many niche and smaller businesses cannot.
Suppose these smaller brands primarily invest in digital marketing, for example. In that case, maximizing MER on existing platforms may cause them to miss longer-term brand-building opportunities in media like broadcast. That would cause them to potentially fall victim to the performance plateau.
That’s why Chris uses Funnel to show clients how MER works best as a guidepost. He aims to show his clients three main levels of MER:
- The lowest: As long as they continue investing in top-of-funnel marketing responsibly and remain profitable, they can continue to do so.
- The target MER: Generally, clients start with a higher rate and lower it after developing a trusting relationship with their agency.
- The uncapped budget: If they exceed a certain MER, the agency obtains the client’s permission to go all in.
When Intentional has this conversation with clients, they can grow the relationship and how clients invest their digital advertising. Although they think MER is somewhat of an imperfect model, they still believe it’s a more responsible model than blindly trusting attribution platforms.
“Some models do things like ignore organic traffic and then just divide the attribution to every other channel,” said Chris. “Others say, ‘We will just take a third of the conversion of any touchpoint, giving each just 30%.’ You can’t just ignore where 50-60% of your traffic might come from and the logic behind that touchpoint attribution. It just doesn’t make sense to us.”
Let’s get creative
So, measurement models are often untrustworthy, at best, according to Chris. Perhaps creatives can play a role?
In the past, some marketers relied solely on the tracking pixels ad platforms to do the heavy lifting of niche targeting and retargeting for them. All the marketers had to do was input who they wanted to target, and the pixels would magically do the rest. As we know, though, those days are over.
Now, marketers need to use the actual creatives to target their customers. How does this work, though?
Let’s imagine Funnel wanted to target agencies. We would need to convey a relevant pain point like “Are you struggling with reporting?” Then, if we wanted to target males older than 40, our creatives should feature male talent older than 40. The platform algorithms then work their magic to track down the intended audience.
Previously, performance marketers would rely on the pixel, which was encoded with their account-specific audience definition.
Chris finds it amusing that the large companies, who have traditionally excelled at long-term branding and built strong performance marketing teams, are not the ones creating the best content today. Instead, small performance agencies that have grown alongside their clients are the ones today who are producing the most impressive content by remaining humble and continuously learning.
The perfect combination
Whether using MER, MMM, tracking pixels, or creative-led targeting, Chris's main point is that the magic lies in the balance of hitting short-term goals while building for long-term success. In his view, the basics of marketing remain the same:
- Make people aware of your brand if they don't know about it.
- Encourage people to choose your brand if they are aware of your category.
- Encourage people to buy your product if they are ready to buy.
Chris referred to Google's "Messy Middle" study and stated that it feels like the minority of marketers actually follow the best practices outlined in that report. As most marketers are aware, most consumers don’t follow a linear buying process. They go in and out and may make their purchasing decisions days later.
“To think a single ad is the sole reason for a conversion is absurd,” said Chris.
Additionally, the work of Les Binet and Peter Field suggests that a 60% investment in brand and 40% in short-term marketing is ideal. However, Chris noted that this model doesn't work for most clients using digital advertising as a conversion or growth channel.
Instead, Intentional typically finds a 20% investment in brand and an 80% investment in conversion initiatives to be a good balance. They build their clients' brands through channels like TikTok, YouTube and digitized media platforms like TV, OOH, and Audio. They also analyze if there is any impact on driving search terms, annual revenue, and overall marketing effectiveness. Finally, they measure the impact of these efforts on their clients' MER.
The main struggle agencies face
Beyond MER or targeting, one of the most challenging things for agencies to manage is the actual relationship with their clients. For Chris, this often starts when an agency doesn’t fully grasp what is happening internally on the client side.
“We may not understand the full economics of what is happening within their business and the product mix,” said Chris. “Within e-commerce, for example, these last two years of shipping increases and product cost increases have affected their margins. Maybe they have launched a new product line with a lower margin than the next? So, we could be running on blended ROAS or blended MER numbers, thinking we are doing well. But that’s not the case. The margins have changed, and so has the client’s profitability.”
That is definitely something Intentional is working toward: How do they contribute more to the client’s margins?
The overall tension when Intentional looks at their 2024 kickoff calls with clients is about how to increase revenue and increase MER. They try to convince the client that the best way to achieve both is through brand and creatives. Yet, as Chris pointed out, measuring the impact of creatives and brand is often measured in too short of a time frame: two to four weeks when it should be six months or more.
By orienting communications, tactics and creatives around the client’s profitability can unlock the agency-client relationship to future growth, according to Chris. So long as the time frames are balanced between short-term needs and long-term goals.
Sound advice for agencies and clients
It is crucial to have a single source of truth that both the agency and the client agree upon. When people don't find what they are looking for in the results, they tend to switch to other solutions that provide more favorable outcomes.
According to Chris, this can lead to multiple sources of truth, which is not ideal. Therefore, it is essential to select a single source of truth and stick with it no matter what.
As an agency, Intentional values honest and open communication with its clients, even if it means informing the client that their results are not good at a particular time.
“We cannot guarantee results; there's no magic here,” said Chris. “Otherwise, I'd be on a beach drinking margaritas.”
Marketers and agencies must realize that tough times are inevitable, and there’s no point in sugar-coating results. Continuous upward growth in perpetuity isn’t realistic; it takes maturity from both parties to get through these tough times. So, the next time you sit in a boardroom and some hot shot presents figures that look too good to be true, dare to challenge them and question whichever method they use.
A quick glimpse into their operational setup
Intentional began using Funnel in 2015 to build dashboards and report on cross-channel data. According to Chris, Funnel has been the best tool for this purpose and has remained integral to feeding their Looker Studio client dashboards to this day.
Over the years, Intentional has moved away from traditional media buying to performance-based advertising and has recently shifted its focus toward creatives. As part of this shift, they’ve also evolved the way they measure performance – steering away from more traditional attribution-based models.
Intentional uses Looker Studio dashboards to track revenue and spend at a high level for their clients, but they also pull in a lot of data points underneath the surface. Intentional likes to keep track of their ad platform's return on ad spend (ROAS) versus the marketing efficiency ratio (MER) and plot those as visuals.
For many brands, there is a point where the MER and ROAS are closely mapped. Over the last year though, with the increase in spend on Google’s Performance Max, Intentional has seen a variance between the MER and ROAS. For example, the ROAS may stay at a 7, while the MER declines to 6s and 5s as spend increases.
Intentional uses dashboards to answer questions such as:
- Are they hitting the ratios?
- Where is the divergence and variance happening at a channel level?
This helps them to course correct where necessary. They also look at the ad tier of the funnel using campaign naming conventions to determine whether it's an objective, conversion-based campaign, or if it's just measuring video views or reach. Then, they look at the percentage of spend on awareness. If they spend more on awareness and the MER plummets, it's not a good sign. So, they keep an eye on the channel and objective level.
Within Looker Studio, they use dashboards to show their clients trending data for the last seven and 30 days. They also have “spend dashboards” that they closely monitor. To plan media and budgets, they assign each channel a ROAS goal, which is built up to the overall MER target.
They further split out each channel's spend dashboard to show a separate line item for branded and unbranded terms. They follow the same process for META, where the bottom-of-funnel conversion has a higher ROAS. The teams check these dashboards daily and have alerts and scripts set up to highlight any issues like no conversion or no spend. They use these dashboards to get a quick snapshot of a client's performance and deal with any emergencies. They can also see trends across their client base, which allows them to identify whether something is a trend or just a one-off occurrence.
Moved from monthly to quarterly budgets
Additionally, Intentional opts for quarterly budgets instead of monthly. They feel that comparing February to January or January to December can be misleading, due to the market's volatility. Meanwhile, comparing December 2023 to December 2022 may not offer a realistic perspective for growing businesses recovering from the pandemic. Therefore, the team sets quarterly budgets and evaluates the performance of the entire quarter based on the previous quarter and the same quarter of the previous year.
Monthly budgets are not preferred, because they often lead to hasty spending toward the end of the month. Whereas, with quarterly budgets, the team can adjust their spending strategies based on their performance. They can go all out when the performance is good, and scale back when it declines.
The team also tracks quarterly spend using spend dashboards, which indicate how much should be spent daily. An alert is sent to the media buyers if the budget is exceeded or underutilized. If they have an uncapped budget, they try to push performance to drive results as much as possible.
The wrap up
The process of measuring marketing success is not a straightforward task and involves various factors. It requires balancing short-term gains with long-term brand building. While metrics like MER can be helpful, they have limitations in capturing long-term effects.
As Chris pointed out, due to the constantly evolving digital advertising ecosystem, it is necessary to have a nuanced approach. This approach should prioritize transparency, experimentation, and understanding client-specific dynamics.
Intentional places great emphasis on maintaining open communication with their clients. They also use operational strategies centered around platforms like Funnel and Looker Studio. This underscores the importance of leveraging data-driven insights while remaining agile enough to adapt to market nuances.
Measuring marketing success involves strategically aligning short-term tactics with long-term objectives. A commitment to honesty, collaboration, and continuous learning should guide this. Ultimately, it is not a one-size-fits-all solution but a combination of various factors that can drive success.
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