ROMI, which stands for return on marketing investment, is actually relatively new in the business world. However, the concept behind it is one that marketers have been using for ages. In essence, ROMI measures the effectiveness of marketing campaigns to help businesses make better decisions and allocate their marketing budget wisely. Ultimately, understanding what ROMI means, why it matters, and how it can benefit your business is crucial, which is exactly what we seek to cover today.
What is Return on Marketing Investment (ROMI)?
Return on marketing investment is a method that seeks to determine the financial value of a specific marketing campaign or set of marketing initiatives. In its most basic form, ROMI is calculated by comparing revenue gains (the amount of money generated through ads) against marketing investment (the amount of money spent on ads). It is used by many companies owing to the key insights it provides. Namely, ROMI can improve the effectiveness of marketing campaigns, brings an additional level of control, enables the prediction of future cash flows, and provides a formulaic approach to marketing
ROMI vs. ROI: How Do They Differ?
Chances are the term ROMI probably sounds a little familiar to you. That is because it is very similar to its sister term, ROI, meaning return on investment. ROI is a commonly-used term in the financial world. That said, ROI and ROMI are not one and the same. Although they might sound similar, the way they are calculated differs as do their uses.
First, ROI is a less precise, simple calculation that involves comparing the cost of the product sold to the revenue generated. While still useful, it is broader in scope and provides a more general understanding of how sales and income relate to expenditures. On the other hand, ROMI takes into account specific marketing costs and the way those costs directly relate to the revenue stream. ROMI is useful for marketers because it takes so many other factors out of the equation. Where ROI can be impacted by variables like supply price increases or manufacturing costs, ROMI offers a clearer picture of how a business’s marketing efforts directly influence its sales.
The Benefits of Return on Marketing Investment
There are many benefits that businesses can derive from measuring return on marketing investment. A few of these benefits include:
ROMI paints an accurate picture
First, ROMI is known for providing accurate and precise data. This means that it can give businesses a solid understanding of how its marketing campaigns are working compared to the revenue they’re generating.
ROMI can give you an edge over the competition
Another benefit of ROMI is that it can help you beat your competitors. If your goal is to dominate the market share, measuring ROMI can help you do just that. Start by creating a benchmark ROMI for a few competitors. As they start to implement new campaigns, take note of the changes in their sales and revenue (this works best if your competitors have transparent financials). If you have access to their marketing campaign budget, you can use this to make a rough calculation of their ROMI. If you notice some impressive returns, it may indicate a successful campaign, which can help you determine your own cost-effective marketing strategy. Ultimately, ROMI can help businesses identify what competitors are doing right, as well as what they are doing wrong, giving you the chance to fill the gaps and attract new customers.
ROMI can help you create your marketing calendar
There’s nothing more frustrating than spending your entire marketing budget and not seeing the results you wanted. Luckily, measuring ROMI can help you avoid this all-too-common situation. By tracking your spending throughout the fiscal year, you can figure out how to better allocate your budget (both in real-time and for the year ahead). Further, comparing your marketing data over time can open your eyes to potential ebbs and flows in your profitability (e.g. doing so might help you learn that profits spike around the holidays). ROMI enables businesses to prioritize spending their money in ways and during times that will allow them to earn the best returns on their investment.
Why is ROMI Important?
At the end of the day, ROMI is a very useful tool for marketers to have. It provides crucial insights and information, helping companies improve their marketing campaigns in both the short and long term. We outline a few reasons that ROMI matters below.
- Invaluable raw data: ROMI’s information-gathering abilities are unmatched, which is part of what makes it so important. Calculating the ROMI of your marketing campaigns allows users to gain access to invaluable raw data they wouldn’t otherwise have. From there, they can better optimize marketing campaigns for their target audiences.
- Communication tool: Second, if you think about it, ROMI is also a powerful communication tool in that it allows you to communicate the progress of your marketing efforts to key players, such as stakeholders. ROMI can act as clear proof that your marketing budget is directly translating to increased profits for the business. It is an effective tool in illustrating how an increase in ad spending could lead to major growth.
- Analyzes individual marketing campaigns: One final reason that ROMI matters is that it allows businesses to analyze each marketing campaign on an individual level. It’s not uncommon for businesses to roll out multiple campaigns at once across various channels, however, keeping track of each can be difficult. Calculating the ROMI for each campaign is an efficient way for businesses to determine if their current marketing efforts are working.
How Do I Calculate ROMI?
Want to know how to calculate ROMI? It’s easier than you might think. To determine the return on marketing investment of a specific campaign, all you need to do is subtract the amount of money you invest in your marketing efforts (e.g. your ad spend) from the financial revenue that you received as a result of the campaign. From there, divide this number by the cost of your marketing investment. The result? Your ROMI. Please note that when calculating ROMI, it’s crucial to include all aspects of your marketing budget, such as social media ad costs, overhead fees for email campaigns, agency fees, staff salaries, and more. If you want your ROMI to be as accurate and precise as possible, be detailed and specific when determining your figures.
