It's true that there are a number of factors, as you mentioned, that can affect the ratio and the overall perception of military readiness; however, having defence spending as a proportion of GDP is probably the easiest way to compare countries amongst themselves to get a sense of the order of magnitude of their effort related to defence spending. It is not a perfect metric, of course, because, as we have discussed, a country can spend a lot of money in specific areas without making that country's military more efficient or more effective at accomplishing its mission.
For that reason, I think NATO is keen on using defence spending as a share of GDP to compare countries amongst themselves when it comes to one aspect of military expenditures and effectiveness, but it's by no means the best or the only way to measure military expenditures.