Measuring the same old marketing metrics isn’t always a good idea.
Why? Because marketing evolves, and so should you. That’s where a ROMI calculation—aka your return on marketing investment—comes into play.
Here’s what ROMI marketing means for your growing brands, and why marketers are pushing this new metric trend in exchange for old favorites like ROAS and ROI.
Return On Marketing Investment: The ROMI Meaning You Should Know
What is the real ROMI meaning?
Aside from the literal meaning of “return on marketing investment,” ROMI is the amount of profit you can directly attribute to your marketing while considering the cost of that marketing.
ROMI Definition
It’s a type of metric that tells you the return on your investment, but ROMI is unique in that it focuses solely on marketing investments rather than sweeping investments.
ROMI segregates marketing investments from other kinds of investments because they act differently. Marketing investments are considered a risk because there is not a 100% guarantee that the investment will see a full return.
Of course, as digital marketing professionals, we know that marketing has a high probability of return when done right. But it’s different from an investment that’s directly associated with inventory and such.
Tied-up investments are called capital expenditure (CAPEX) while marketing investments are called operational expenditure (OPEX).
How ROMI Helps Your Marketing Strategy
The idea of ROMI has actually been around since before the turn of the century, but it’s definitely gaining steam in recent years—and for good reason.
Now, it’s not just seasoned thought leaders writing about ROMI.
Once you know your ROMI, you have a good idea of whether you’re in the red or green in terms of marketing investments. You can also tell how much you’re earning based on this “risked” capital.
With the results of your calculation in hand, you can determine pivots and trajectory for your marketing strategy moving into the upcoming quarter (and yes, I highly recommend addressing marketing metrics on a quarterly basis).
Return on Marketing Investment Diagram
Basically, you want to figure out just how effective your efforts are now and how they might affect your company down the line. You can be more efficient with your time and maximize your marketing team’s productivity. Plus, you can distribute your resources where they’re going to be most productive. With that in mind, ROMI just makes sense.
In 2018, a company called Outsell released a study about ROMI in the auto dealer industry. The findings were spectacular. Here are the study’s parameters:
- 300 US dealerships
- September–October 2018
- 420,000 customers
- 5 million customer interactions
- $72 million in media spend
Ultimately, analyzing ROMI highlighted the fact that about 50% of those dealerships were overspending on at least one marketing channel. In this case, they invested so much that they were diminishing their returns.
Knowing their ROMI helped these dealerships reallocate their investments in smarter ways. Since many of the dealers were also underspending on social media, they could redistribute funding there.
The study also showed different patterns between large and small dealers. For example, large dealers were overspending on search engine marketing (SEM). This goes to show that your marketing efforts should be unique to your company, not copied and pasted from a competitor!
The Rundown of the ROMI Calculation
You may get that this metric works in theory, but you’re going to need the ROMI calculation if you want to get anywhere.
Here’s the equation :
ROMI Formula
Here, your “incremental revenue” can either be total or marginal. Just note that and remain consistent throughout the quarters.
Your ROMI factor will come out to be a number (either whole or by decimal depending on the result) or a percentile. To get a percentile, just multiply the factor by 100.
Here’s an example of how that might look IRL:
ROMI Formula Example
If you’re lost on ROMI or you don’t want to spend the time and use up your staff just to get the metric, there are services that will find it for you.
In many cases, it’s simple enough to determine on your own—but you can always refer to companies like Black Ink, which has a SaaS offering that measures ROMI for you.
Use ROMI to Determine Short-Term & Long-Term Marketing Effectiveness
ROMI marketing applies to both the short and long term.
Short-term ROMI: This is how you determine your revenue for every dollar of marketing investments. It’s a more basic approach to ROMI, but it’s good for many marketing teams. It can help direct your marketing efforts moving forward based on how lucrative (or not lucrative) they actually are. (And you’re determining how lucrative they are based on actual numbers, not just a guesstimation.)
Long-term ROMI: A long-term lens on ROMI marketing makes sense for teams looking to better understand marketing efforts like brand awareness and consumer intent. Basically, it addresses the long-term value of your marketing efforts as well as the incremental revenue that’s crucial to your bottom line.
ROMI vs. ROI: Which Is the Better Marketing Metric?
ROMI and return on investment (ROI) are actually the same calculation, but you’re looking at it from a different perspective. Here’s what I mean:
ROI could be about any investment in your company (as mentioned above, capital or operational expenditure). ROMI, on the other hand, has to do with marketing specifically.
They’re both important if you’re running a business, but ROMI is tailored to your marketing efforts. Not your inventory. Not your entire overhead.
Limiting yourself to ROI in order to direct your marketing efforts is like using a paper towel to blow your nose when you’ve got a tissue right there. Why not use the lotion-infused Kleenex?
ROMI vs. ROAS
Whereas return on ad spend (ROAS) is your marketing income divided by your marketing expenses, ROMI is different because it deducts your cost of goods and advertising expenses.
Again, this gives you a more streamlined take on what’s really propelling your brand reputation and revenue.
On the contrary, if you stick with the ROAS metric on separate marketing channels, you’re not getting a clear picture because you’re not considering those extra expenses.
At the end of the day, ROMI is more effective than ROI and ROAS. Just make sure you subtract the cost of goods sold and marketing expenditures specifically. Unlike ROI and ROAS, you’ll have a clear picture of whether or not your investments are doing what they’re supposed to be doing—and by how much.
Should You Go Even More Nuanced?
The ROMI calculation allows for a more educated strategy than metrics like ROAS and ROI.
However, not all marketing investments are created equally. Sometimes, it’s nice to know how different marketing objectives are performing in terms of profit.
In one of his books, Rex Briggs actually coined the term ROMO for return on marketing objective. This gives marketers space to have different metrics associated with different marketing objectives. Not all of these metrics are related to profit, either. Some have to do with brand awareness or brand perception.
Additionally, you can separate ROMI by campaigns or where those campaigns lie in the funnel (i.e. top of the funnel initiatives like social media tags or organic site traffic, or bottom of the funnel initiatives like sales and conversions).
But if you haven’t delved into ROMI marketing, you should definitely start there. Once you get comfortable, you can always dig deeper into the data.
(Keep in mind that getting too laser-focused on data might jumble your marketing efforts, so use it as a guide—but not a be-all-end-all.)
The Bottom Line On ROMI Marketing
From the top of the funnel to the bottom—and across marketing channels—using the ROMI marketing method can bring you success in ways that once befuddled you.
Return on marketing investment isn’t the only measurement you should look at, either.
But if you want to start, then toss ROI and ROAS aside and make room for a more comprehensive, game-changing approach to measuring the productivity of your marketing investments.
