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What is ROMI and Why It's Important For Marketers

What is ROMI and Why It's Important For Marketers
Tim Parkin

What is the Concept and Meaning of ROMI?

First, it’s important to understand the meaning and definition of ROMI. An acronym for "return on marketing investment", this concept is actually fairly new to the marketing world.

But now, it’s one of the most important tools you can have in your marketing arsenal. By analyzing your results on a campaign by campaign basis, you arm yourself with the knowledge for comprehensive planning.

Basically, ROMI is a comparative analysis of how much you are investing in marketing efforts to how much you are actually gaining financially. Think of it as breaking down how much bang you are actually getting for your marketing buck. This gives you a clear picture of just how much your marketing budget is working for your success.

This calculation puts an exact number on the way marketing campaigns are contributing to profits. It can give you some pretty vital information to guide your marketing team and your strategy.

But first, it’s important to understand why it’s important and how to calculate it before you start to think about how to improve your ROMI.

ROMI vs. ROI: What’s the Difference?

One of the most common terms in discussing a business and the financials surrounding it is the ROI or the return on investment. This is an extremely prevalent calculation used across several lines and types of businesses. However, it’s important to keep in mind that it’s a totally different calculation than ROMI and has different uses.

So, what’s the difference?

ROI is a more general calculation. It simply takes the investment in the costs of the product sold and compares it to the revenue generated to measure the return. Basically, it’s a more broad way of analyzing how sales and income relate to expenditures as a whole.

With ROMI, you are looking at marketing specific costs and the way those investments directly relate to the revenue stream. This is an important tool for a marketer because it takes other factors out of the equation. 

The ROI can be affected by a number of things like manufacturing costs, supply price increases, or changes in overhead expenses. By using ROMI, you get a more clear and precise picture of how your marketing is directly impacting sales.

Why is ROMI Important?

ROMI is an incredibly useful and important figure for a marketer to have. It provides some useful information as well as serving as a great planning tool. It can also be used for communication within the organization and to shareholders.

And, it’s also a measurable way to plan, track, and reach your marketing organization's goals.

Useful Information Gathering

Typically in marketing, crafting great campaigns is all about trial and error. You launch that imaginative social media ad campaign and anxiously await results. Maybe you print and mail a coupon or generate a discount code and see how many customers you can entice to use it.

With these methods, you can get a pretty good picture of the engagement with your campaign:

How many users are interacting with your ad posts? How many new and current customers are taking advantage of that discount? 

However, calculating the ROMI of your campaigns allows you to dive deeper. It provides you with some very useful raw data to analyze your marketing efforts. We’ll get to just why this is so beneficial in just a bit. 

Powerful Communication Tool

As a marketing professional, there are going to be many people that you will have to answer to. Oftentimes, these individuals are so-called “numbers people”. They want to see clear data and fact-based evidence that your team is marketing the company to its fullest potential. 

Maybe it’s executive-level leadership wanting to know how you are making the most of your budget. It might be shareholders, invested financially and putting their trust in you to use your funds to best grow the company. It might even be your own employees with a need to understand their impact and feel satisfaction from their efforts.

Either way, your ROMI is a fantastic way to communicate your marketing progress.

It’s an objective number that shows how your marketing budget directly results in increased profits. It’s the perfect way to illustrate how an increase in spending could mean some serious growth. It can also justify why a cut to your budget could be catastrophic to sales numbers. 

Measuring Individual Campaigns

One of the most important features of ROMI is that it can analyze each campaign individually. This is some great data for planning use. We’ll discuss the awesome benefit of that later. But first, we’ll talk about how to go about collecting this data. 

Let’s say you are rolling out a huge campaign across various channels. Maybe you are sending targeted emails, pushing out social media ads, and adding a serious amount of content to your website.

That’s going to be a ton of marketing spend, right? 

How in the world are you going to know that all of these efforts, and more importantly money, are working to actually boost sales?

First, you’re going to want a baseline to see how your current marketing plan is working by calculating your ROMI.

Next, we’ll dive deeper into the benefits of this as well as the challenges you may face. There will likely be some hurdles as you move through campaigns, but as you get used to using the ROMI formula, you’ll become more comfortable gathering and comparing the data.

How do I Calculate ROMI? What is the ROMI Formula?

Calculating your ROMI is both complicated and simple. I know, a total oxymoron. But you’ll find that this clear-cut formula can come with some complications and challenges that we will cover later. 

To find the ROMI of your campaign, take the financial revenue that you receive as a result of your campaign and subtract the amount you invested in your marketing efforts. Then divide this by the cost of your marketing investment. The result is your ROMI. The formula looks like this:

When calculating these numbers it’s important to include all of your marketing budget line items. Everything from social media ad costs to overhead fees for email generation need to be considered. Remember to include things like staff salaries and agency fees to get a true picture of your complete costs.

Tracking and Measuring Your ROMI

Now that you know how to calculate the ROMI, you need to develop a plan to track it. This comes with a lot of questions and details you need to consider in order to use your data in the most effective way.

How long after you implement a campaign are you going to analyze your ROMI?

This is a question that largely reflects your customers’ habits and the product you sell. Are you an impulse buy item or subscription service? Or are you marketing a large ticket item that prompts more deliberation? 

Say you are rolling out a campaign for something less risky for customers to try like a new coffee drink or a monthly streaming service. You will likely start to see some sales data pretty early in your campaign. Customers could very well see your ad and purchase your item the same day. 

In this situation, you can start tracking and analyzing your ROMI numbers pretty early on. There won’t be a huge lag in the campaign roll out and the time you’ll be able to see if it’s effective. You can even adjust your strategy periodically and analyze the ROMI on an ongoing basis.

However, if your company sells items that customers see as more of an investment, you might want to give your campaign some time before you start analyzing it. Not a ton of people are going to see your car ad online and order one immediately. These types of products require time, customer research, and often several views of your marketing material before they pull the purchase trigger.

In this instance, you can use other tools to analyze your campaign in the meantime before your ROMI is more accurate. Everything from click-throughs to ad views can gauge the market’s interest in your ad. Keep an eye on your leading metrics, like website traffic, to make sure they're increasing as the result of your campaign.

What Are The Benefits of Using ROMI?

There are a ton of awesome benefits to using the ROMI formula. From giving you some accurate profit data to helping indicate which channels are more successful, it is a powerful planning tool. Tracking your ROMI over time also allows you to get a good feel for your long term efforts and how you can improve them for the future. 

ROMI Provides Some Very Accurate Data

What’s great about ROMI is it gives you a solid picture of how your marketing strategy is working compared to the sales it is generating. However, it doesn’t only focus on the revenue you’re generating. It makes the whole picture of the actual raw profit more clear. 

Let’s talk about a few scenarios. 

In scenario A, Marketing Team A rolls out a pretty simple social media campaign. They place a few ads on Facebook and produce some quick and low-cost YouTube video ads. They see a tiny bump in sales growth resulting from their campaign. However, they also didn’t invest much in marketing. 

Marketing Team B rolls out their campaign in Scenario B. They invest in expensive banner ads and highly targeted, well-placed ads on Twitter. They go all-in with their planning and spend a big chunk of change. As a result, they see sales and revenue soar. 

So which marketing team was more successful?

Initially, you would assume Marketing Team B, right? After all, they were the ones that saw those super impressive sales numbers. 

But not so fast. Revenue alone doesn’t tell the whole story. 

In fact, these two teams could have some pretty similar ROMI numbers from the result of their campaigns. But how? Marketing Team B smashed it out of the park. 

However, they also shelled out some serious cash. So to make big bucks, they spent big bucks meaning their return on investment could very well be the same as Marketing Team A.

These scenarios are why it’s incredibly imperative to look at the pure profit rather than sheer revenue. It’s the only true way to test the effectiveness and overall success of your marketing efforts. Using ROMI gives you a clear picture of this profit based on the numbers both before and after your campaign. 

ROMI Can Help You Win Over Your Competitors

In order to win out over your competition, you need to pull in more customers and sales right? Your goal is to dominate the market share. And since you’re both chasing the same target market, you can use ROMI to find success over your competitors. 

One way to do this is to use their own data for clues on what they are doing right, and what they aren’t doing so well. If you are fortunate enough to have competition with transparent financials, you can see where their budget is allocated and how much revenue they are pulling in.

Keep an eye on their trends and how they align with their campaigns. As you do with your own calculations, create a benchmark ROMI for a few competitors. Then, after you see them roll out big marketing efforts, take note of the changes in their sales and revenue. If you have access to their campaign budget, you can use this to make a vague calculation of their ROMI.

If you see some impressive ROMI from their campaign, it can be a good indicator of what is a cost-effective advertising strategy for your shared target market. Take note of what channels and tactics they used to be both efficient in marketing and boost their sales number. 

On the flip side, if you notice a competitor rolling out a big, splashy (and likely expensive) campaign, keep an eye on their sales numbers. If it results in a lackluster estimated ROMI, you have some valuable clues on the types of marketing strategies to steer clear of. 

Another way to use your competitors’ data to your advantage is by being aware of how outside forces impact your ROMI. You could do everything right as a marketing pro and still not see the results and ROMI you were striving for. Checking out your competitors can give you the why. 

Maybe your whole market is seeing a downturn in sales. Everything from an economic slump to changing trends can result in a shift in consumer spending habits. Reevaluate your marketing efforts and get creative to figure out how you can win more of the shrinking market share. 

However, if you see that your competitors’ ROMI numbers are steadily improving while yours are stagnant or shrinking, it’s time to take a harder look at why. Are they using different channels to reach more of the target market? Maybe they are offering better prices or a wider range of product options. Look at what they are apparently doing right and use it to improve your sales.

ROMI Can Identify the Ideal Channel Combination

By analyzing individual campaigns, you can carefully create the perfect balance of channel outreach. It will take time to collect the data needed, but after a few campaigns and ROMI comparisons, you should have some excellent information. Use this to determine where you should put the bulk of your marketing budget, and what is less effective. 

Maybe you craft a campaign that puts all of your eggs in the social media basket, only to be disappointed by your ROMI numbers. In a world where advertising can be relatively affordable, it’s easy to overspend. By investing so much in this strategy, you could be creating a risk that outweighs the maximum revenue reward potential. 

Marketing expenses are always, I repeat, always a risk. There is no way to predict whether your campaign will work and customers will be engaged. There is especially no way to tell if it will ultimately lead to sales. The key here is balancing your marketing risks across channels to minimize the likelihood of failure.

Over time, you’ll see how the right mix of marketing channels gets you the results you are shooting for. Maybe you find that shifting a little of your budget from email marketing to your Pinterest and YouTube ads boosts your ROMI. A reallocation of funds from your website to podcast ads might give you a jump in your ROMI. These shifts can help you find that perfect balance.

Great ROMI tracking and modeling software will be your best friend as a marketer. It will carefully analyze the data for you and give you easy to interpret results. This, combined with your expertise, will allow you to make some smart decisions for your future campaigns. 

ROMI Can Help You Craft Your Marketing Calendar

Burning through your annual marketing budget without seeing the results you desired can leave you frustrated. Tracking your ROMI throughout your fiscal year can help you allocate your budget properly for the year. It will allow you to focus your dollars on the periods that will get you the most out of your carefully spent funds.

Comparing your data over time can also indicate the ebbs and flows in your profitability. Maybe you see spikes during the holidays. This might mean that the weeks and months leading up to the season is a good place to invest in marketing your product. You know this is already a popular time for your product type, capitalize on it by grabbing a larger portion of the market. 

Checking these trends carefully can also show you where not to waste precious marketing funds. You may have noticed that, despite your best and most creative efforts, your ROMI simply slumps during the second quarter every year. There may be a good reason for this that not even the best marketer in the world can overcome.

Again, your competition and their data are super helpful here. Are they seeing the same downturns around the same time of year? It may simply be that is a slow time for your specific market. This tells you that you can pull back your marketing spend during this time and focus on more profitable times of the year. 

However, if you see that your competitors are consistently seeing steady ROMI numbers at times yours are falling, take a look at what you can do differently. Don’t be afraid to check out what they are doing right during these times for clues to boost your own campaign. 

Why reinvent the marketing wheel? Get inspired by their strategy and put a spin on it to make it your own.

Common sense and intuition are a marketer’s best assets. It may simply be that the product you’re selling isn’t popular year-round. Wasting marketing dollars trying to sell snow shovels in the summer would result in some pretty depressing ROMI. However, saving the bulk of your lawn and garden company’s budget for the spring can win big. Consider your product and the habits of your customers along with the concrete data.

What Challenges May I Face Calculating and Using ROMI?

As great as your ROMI is, accurately calculating it can come with its own set of challenges. Being mindful and diligent can help you overcome them. And being aware of them is the first step in avoiding them impacting the accuracy of your ROMI.

  • Calculating Your True Investment Amount - It can be easy to miss adding incremental expenses in your calculations. Make sure not to forget any line items, no matter how small. Leaving out something like web design fees or even sales tax on ads can lead to an inflated (and inaccurate) ROMI.
  • Analyzing Your ROMI at the Right Time - It can be tricky to time your ROMI analysis at the correct timing for your campaign. This can make it tough to get a true picture of what sales were truly generated from your marketing efforts. Be mindful when deciding on the “when” part of your plan.
  • Setting a True Baseline - If you haven’t been using ROMI, it can be nearly impossible to set a true baseline. Your company has already likely been using a variety of marketing efforts.

    So your baseline will likely include the revenue generated from past strategies and current customers. Future data may also result from repeat and loyal customers, not new marketing campaigns. 
  • Measuring Multiple Campaigns - You might have several campaigns rolling out at once targeting different markets on several channels. It can be difficult to tell exactly how much revenue is coming from which campaign.

    Sure, you can tell which channel the customer went through to land at your site, but an add on another channel might have initially piqued their interest. Pay attention to other data such as ad clicks and views as well to see which media channels are resulting in the greatest impact. 

Using ROMI To Reach Your Marketing Goals

Here, we’ve covered why ROMI is important and how its many benefits can boost your marketing strategy. We’ve also addressed the challenges you may face and how you can strive to overcome them. With this knowledge, you can calculate and track your ROMI to create a perfectly balanced channel combination to best serve your product. 

ROMI is an important calculation to measure your campaigns. But remember, it’s only one tool to carefully analyze the effectiveness of your marketing strategies. Using it in conjunction with other data sets and your intuition and analysis can give you a full picture of your results. As an expert marketer, ROMI will help you reach new heights of profitability and growth. 

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