Marketing Profitability 101: What Your Agency Should Know About metrics like MER, ROAS, CAC and more
If you’re investing in marketing—especially paid media—you need to know one thing: growth means nothing without profitability. Yet, many agencies obsess over vanity metrics like reach, impressions, or even ROAS (Return on Ad Spend), without connecting the dots to your bottom line.
In this guide, we’ll walk you through the essential marketing profitability metrics every business owner should understand—and why any agency you partner with must treat these numbers like gospel. Whether you're just starting or scaling up, this is your crash course in data-driven, profit-first marketing.
WHAT IS Marketing Efficiency Ratio (MER)?
MER gives you a high-level view of marketing profitability. It’s not tied to just one platform, like Facebook or Google—it measures the efficiency of all marketing channels combined so that you don’t just look at one channel. Think about your investment and efforts from fixed costs like marketing subscriptions to variable costs like overheads of hiring marketing stuff, to understand better the role of marketing.
How To Calculate: MER = Total Revenue / Total Marketing Spend
Example:
If you spend $20,000 in total marketing and make $100,000 in revenue, your MER is 5.0.
This means for every $1 you spent, you made $5 in revenue.
WHAT IS RETURN ON AD SPEND (ROAS)?
Zooming in closer, ROAS gives you a more granular-level view of channel profitability. ROAS helps you evaluate how well a specific campaign or channel is performing. It’s more granular than MER.
How To Calculate: ROAS = Revenue from Ads / Cost of Ads
Example:
Spend $5,000 on Meta Ads and make $15,000 in tracked revenue = 3.0x ROAS.
Something important to note is that, ROAS can look great but still be unprofitable if your costs are high. That’s why you need more than just ROAS and take a longer term view of your costs and sales.
WHAT IS CUSTOMER ACQUISITION COST (CAC)?
This tells you how much it costs to acquire each new customer. It’s key to understanding whether your growth is sustainable. For example, if the CAC for your business in acquiring customers is exceptionally high - this is not sustainable as there is limited marketing expense that can be invested in getting new customers when it could be spent on either items like R&D, Variable costs etc.
How To Calculate: CAC = Total Sales & Marketing Costs / Number of New Customers Acquired
Example:
Spend $10,000 to acquire 100 new customers = $100 CAC
Although a lower CAC might look good on paper, and imply a more efficient acquisition - it is only a positive market if your business is acquiring profitable customers.
WHAT IS CUSTOMER LIFETIME VALUE (LTV)?
LTV tells you how much a customer is worth to your business over time—not just on their first purchase. This also means that your business needs to have a robust data structure in place for you to be able to track your customer details and profitability. Although the initial investment into building this is potentially high - the upside is well worth as you will be able to segment your customers into different value segments and decide to a more granular degree the investment required to market to said customer.
How To Calculate: LTV = Average Purchase Value x Purchase Frequency x Customer Lifespan
Example:
A customer buys $50 of products monthly and stays with you for 12 months = $600 LTV.
This is essential for planning your CAC ceiling. If your LTV is $600, spending $100–$150 to acquire a customer could be very profitable.
Why These Metrics Matter More Than Vanity Metrics
Impressions, likes, and follower counts can feel good—but they don’t pay the bills. What pays the bills is efficient, profitable growth. That’s why these metrics must be at the core of your marketing strategy.
A campaign that looks great on the surface (high ROAS, lots of engagement) might be losing money if CAC is too high or LTV is too low. On the flip side, a modest-looking campaign might be a winner if it's driving profitable repeat customers at scale.
The Role of Your Marketing Agency
A good agency runs ads. A great agency builds a profitable growth engine.
Your agency should:
Have an understanding for your unit economics before launching campaigns
Help you understand and improve your CAC:LTV ratio
Track profitability across marketing efforts, not just platform-specific ROAS
Build campaigns that align with your margins and contribution thresholds
If your current agency isn’t having these conversations, you may be flying blind.
What We Do Differently at MAJORFORM
At Majorform, we specialize in performance marketing with profitability at its core. We don’t just run ads—we build and optimize campaigns based on your actual numbers:
We align paid strategy with your unit economics
We help you lower CAC through creative testing & funnel optimization
We increase LTV with retention strategies and remarketing
And we communicate in language that makes sense to business owners—not just marketers
