ROMI: how to calculate and use in marketing

The ROMI formula is a key tool for evaluating the effectiveness of marketing investments and is considered one of the most important indicators of marketing success. In this article, we'll take a closer look at how ROMI can be used to analyse the effectiveness of marketing campaigns, how to calculate it correctly and how you can use this metric to improve your business performance.

What is ROMI?

ROMI (Return on Marketing Investment) is a metric that measures the effectiveness of marketing investments. It allows you to estimate how profitable investments in marketing activities such as advertising campaigns, website development and maintenance, search engine optimisation (SEO), emails, blogging, etc. are. Importantly, ROMI focuses exclusively on marketing-related costs and does not take into account other types of expenditure such as production costs, staff salaries or office rent.

Why calculate ROMI?

The purpose of ROMI is to assess the impact of marketing expenditure on a company's revenue. This indicator helps to identify which marketing strategies and promotional tools are effective and generate high returns, and which are unprofitable.

By understanding the effectiveness of your advertising investment and its impact on profitability, you can manage your marketing budget more effectively and reallocate resources from less productive channels to those that deliver better results. This will help you optimise your marketing spend and increase the overall effectiveness of your campaigns.

ROMI calculation formula

Every company can calculate ROMI in its own way, depending on what you want to know. The simple ROMI formula is as follows

What is a good ROMI?

ROMI should be greater than 100%, which indicates the profitability of advertising: each unit of currency invested is not only recouped, but also generates additional revenue.

A ROMI of 100% means that the project has reached the break-even point and the money invested has been recouped without making a profit. A ROMI of less than 100% indicates that investment in marketing is not delivering the expected return.

When and who should calculate ROMI?

The ROMI metric is used in areas of activity where the results are not dependent on external changes and is most commonly used to analyse direct sales of goods and services. It allows you to assess the effectiveness of marketing activities and make informed management decisions, for example by measuring the impact of a particular advertising campaign. However, it is important to note that ROMI does not take into account the long-term impact on brand building.

Marketing campaigns are not always directly linked to specific sales results. For example, a customer may see an ad for the first time, but make a purchase later through other channels, making it difficult to accurately track the impact of advertising on the purchase decision.

When analysing ROMI, it is necessary to take into account all the possible external factors that can affect sales, such as changes in management or supply problems. These factors can reduce ROMI without reflecting the effectiveness of marketing efforts.

For companies selling high value or exclusive products, such as property or cars, the use of ROMI may not be effective due to the long purchase cycle. Marketing costs and profits may be spread over different periods, making it difficult to get an accurate picture of the impact of marketing investment.

We have calculated ROMI. What's next?

Once you've identified which marketing channel is most profitable for your business, you can optimise your investment by shifting resources from lower performing channels to higher performing ones.

Understanding ROMI allows you to determine exactly where key metrics such as average cost per click, product value, average purchase size and total sales should be focused to ensure your marketing spend is not only recouped, but profitable.

FAQ

What is ROMI?

Return on Marketing Investment (ROMI) is a metric that measures the effectiveness of marketing investments by focusing solely on marketing costs. It does not take into account other operating expenses such as production costs, employee costs or rent. This metric is important for analysing how efficiently marketing investments are converted into profits.

How to calculate ROMI

To calculate return on marketing investment (ROMI), you first need to determine the net revenue generated by your marketing efforts. Marketing costs are subtracted from the revenue generated by marketing. The result is then divided by the amount of marketing spend and then multiplied by 100% to convert it into a percentage. It is important to include all marketing expenses to ensure the accuracy of the calculation and to avoid incorrect conclusions.

The correct calculation of ROMI requires an accurate accounting of all marketing costs, including advertising, promotion, marketing staff salaries and other related expenses. This will give you a realistic picture of the effectiveness of your marketing investment.

It is recommended that ROMI is calculated during a stable period of the company's operations, when major changes in business processes or the external environment do not affect sales results.

ROMI calculation formula

ROMI = (Marketing Income - Marketing Expenses) / Marketing Expenses * 100%.