Change your target aMER when you discount products

If you're running a paid acquisition program for an e-commerce company, there's a critical mistake I see brands make all the time: failing to update their MER (Marketing Efficiency Ratio) targets when putting products on promotion.

This oversight can silently drain your profitability while you think you're hitting your targets. Let me walk you through exactly why this matters.

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‍Understanding the Baseline

Let's start with a straightforward example.

Say Product A has an average order value of $150 for first-time customers. Your cost of goods sold (COGS) is $70, which leaves you with $80 of Contribution Margin 1.

After deducting $20 in variable costs for fulfillment and delivery, you're left with $60 in gross margin.

If your goal is to acquire customers at break-even, that means your customer acquisition cost (CAC) can be $60. This gives you a 2.5 MER target for your ad program.

Simple enough, right?

What Happens When You Discount

Now let's say you decide to run a promotion and discount the product by 15%.

Here's where brands get into trouble: they keep the same MER target while changing the unit economics.

If you maintain that same $60 acquisition cost but discount your product by 15%, suddenly you're losing $23 on every new customer acquisition.

To maintain your break-even customer acquisition goal during the promotion, your customer acquisition cost would actually need to drop to $37. This means your MER target needs to shift from 2.5 to 3.45.

Why This Is Critical

When you run a promotion or discount your products, the goalposts move on your performance expectations.

You need to know exactly how much more efficient your ad program needs to become to maintain whatever profitability target you have at your organization.

Without updating your targets, you might think you're performing well while actually hemorrhaging money on every sale. Your advertiser might be reporting that they're "hitting targets," but your bank account tells a different story.

The Bottom Line

Before launching any promotion:

1. Calculate your new contribution margin with the discounted price
2. Determine what acquisition cost maintains your profitability goals
3. Update your MER targets accordingly
4. Communicate these new targets clearly to your paid media team

Your paid media team can't optimize for the right outcomes if they're working with outdated targets. Make sure everyone understands how the math changes when promotions go live.

Don't let a simple oversight turn a strategic promotion into an unprofitable disaster.

Have questions about calculating your MER targets or running profitable promotions? Send us a message.