Return on Marketing Investment, also known as ROMI, is a branch of ROI which measures the return on investment of marketing. Different marketing avenues, strategies, and mediums come at a range of costs. Depending on which combination are being used or the frequency, the cost of marketing an organization’s services, product, or brand can quickly rack up a hefty price tag. But the results of that marketing campaign if successful or effective can balance those costs and bring in additional revenue. So, ROMI is used to measure how much revenue can created in compared to expenses.
How to Measure ROMI?
Generally, the formula to determine the ROMI is gross profit minus marketing investment. If the balance of that equation is at zero, the marketing efforts have not caused any losses, if it is a positive amount then the you could call the campaign a success for driving profit, however if the formula equals a negative number then the marketing campaign was not effective.
Contribution Margin
Marketers often need a closer more analytical approach to understanding their ROMI. A marketing campaign working is simply not enough for organizations seeking to claim greater market share and grow. To maximize marketing, companies must understand how each strategy works and which strategy is the most effective. They do this by focusing on the “contribution margin.”
The contribution margin is the difference between gross profit and variable costs, or in this case the marketing investment alluded to earlier. It can also be looked at as a ratio or percentage to compare past or potential marketing strategies going forward and decide on the most cost-effective solution. According to HubSpot, Contribution Margin Ratio is calculated by dividing the contribution margin by the gross profit.
When to Measure ROMI?
There is no one-off time to decide to analyze the effectiveness or return on marketing strategies. Marketing should be evaluated before, during, and after a campaign is launched to adequately understand the impact of different variables including audience, content, media, and every other element as well.
Short Term vs Long Term ROMI
Short term ROMI measurements compare revenue to every marketing dollar spent. According to Lumen, in the short term approach, revenue is considered market share or contribution market as well as other outputs. Long term ROMI is used as a metric to gage changes in brand awareness, customer loyalty and other values that can change because of marketing which can be harder or impossible to depict as number.
Long Term ROMI is more challenging to measure because of its non-numerical nature, it can be more difficult to prioritize investments that boost brand loyalty when their ROMI can’t be portrayed with the certainty of other investments such as sales. Nevertheless, it is still important to understand how your prospects feel about your brand even when they’re not actively engaged with spending during that time.
Why Measure ROMI?
Continual and consistent measurement of ROMI allows companies to understand how to best adapt marketing strategies to resonate with their target market. Understanding how previous tradeshows, content, brochures, any other marketing strategies have worked in the past allows organizations to work out kinks and customize their approach to have the best impact on sales and customers, maximizing their return on investment.
