ROMI – Return on Marketing Investment
Sep 18, 2019 ● 5 min read
To explain what ROMI is, we first need to take a look at what ROI is. ROI, or Return on Investment, is a much simpler equation. In a nutshell, it calculates how much money has been invested and, then, what you've earned through this investment. It's a relatively crucial strategic metric for many things. For one, it could be used to decide whether to partner with a new supplier or whether a particular product is working particularly well.
What is ROMI?
I'm sure you’ve seen this term spread liberally across the internet in recent years as it has become somewhat of a famous buzzword in the marketing strategy world, especially in digital marketing
It's quite simple: if we receive more money than what we invest, we’re looking at a successful ROI.
However, ROMI, or Return on Marketing Investment, is a much more sophisticated metric because it involves a lot more variables. Whereas ROI is an equation solely calculating investment and money earnt, ROMI includes more tangible and intangible resources in the equation, such as brand awareness or user conversions, which aren't as easy to calculate or monetize; or it can include discount codes included in the marketing activity scheme and COGs.
How do we calculate ROMI?
It's a little bit more complicated than just simple calculations and has a lot more to do with the goals of your campaign.
For example, there could be a marketing campaign in which you decide to invest $10,000 and, in return, sales from this campaign only amount to $9,000. In usual standards, were we to follow the ROI equation, this campaign would be considered as failing.
However, let's consider that this campaign has increased positive mentions on social media by a whopping 50%, which pushes brand awareness and lets us know that more sales will come in the long run. Can we still consider this marketing campaign a failure? Not really.
Let’s look at this the other way around.
Let's say you have invested $,5000 in your campaign and, suddenly, you find yourself with a sales increase of $8,000, way overcoming the original investment. This, in ROI terms, would be considered a definite success.
But now let's suppose that, although there was an increase in sales, your social media mentions remained stagnant, and there was no push on brand awareness. It's the same way as the last example, once we factor in these other metrics to the equation, it becomes much more complicated to get a clear cut for a positive or negative measure.
In addition to this, ROMI takes in all of the monetary elements to achieve a valuable result. Where ROI and ROAS take solely the amount spent on a marketing campaign and then the amount earned, ROMI also takes into account shipping costs, COGs, and, for example, discounts you're giving to a client. Where ROI and ROAS measure revenue, ROMI measures profits. It's a truly valuable equation to work within marketing campaigns.
So, how you calculate ROMI really depends on what goals and metrics you want to measure. This is why the return on marketing investment is so difficult to measure.
Why is ROMI important?
When it comes to ROI vs. ROAS, it's the same outcome. The equation is going to give you a quick overview of the money spent on your advertising and cash flow gained through sales. It's going to provide an overview of your revenue, but it's not going to give you an accurate measure of your profits, and it's not going to look at all the other variables necessary for brand success.
Profits are what is going to drive your business to success, no matter which industry you're trying to expand in. Your revenue can keep going up and up, but without control of profits, there's no accurate growth measure, and there will undoubtedly be some problems in the long run. We've also talked about the other variables that come into play when we work with marketing.
These variables are, for example, gaining better brand visibility on social media or making your brand stickier. ROMI is an accurate measure of all of this.
ROMI is the equation that is going to take all the numbers (money spent on ads, COGs, shipping costs, discount codes) and give you an accurate representation of the money you're making off a marketing campaign. Not only this, but it's going to give you a higher representation of the expanse of your marketing campaign.
Sales aren't everything, and we shouldn't measure the value of a marketing campaign solely on them, that's not how the modern digital marketing era works.
We should start measuring the returns on our marketing investments using ROMI because this equation, in the end, is going to give a full overview of whether or not the campaign has reached all of its intended targets and not just revenue.