Contents
- What is ROMI?
- Why is ROMI needed?
- How to calculate ROMI?
- ROMI, ROI, and ROAS: what is the difference?
What is ROMI?
ROMI, or return on marketing investment, is a key metric that demonstrates how much revenue a company has earned as a result of its marketing investments. This indicator can be calculated for all of a company's marketing expenses or for specific campaigns or products. Importantly, both revenue and costs are accounted for only in the areas or products for which ROMI is being calculated.
The formula for calculating ROMI is as follows: ROMI = (Revenue from marketing – Marketing expenses) / Marketing expenses * 100%. For marketing investments to be effective, ROMI must be positive. If this figure is below 0%, it means that promotion costs exceed revenues, leading to negative marketing profits.
Some experts argue that ROMI should be above 100%, implying that for every ruble invested, the company should earn at least 1 ruble in profit. For a more accurate assessment of the effectiveness of marketing efforts, it is recommended to track ROMI over time, allowing for observation of changes resulting from various marketing campaigns.
Why is ROMI needed?
Calculating ROMI can be useful for evaluating both the overall marketing activity of a company and for analyzing individual sales channels. This helps identify how effectively the business or its specific parts are being promoted. For example, the same marketing strategies may yield good results for promoting some services and may not be profitable for others at all.
Calculating ROMI over specific periods helps track the effectiveness of marketing dynamically, especially in conditions of changes that are difficult to quantify. While the return on contextual advertising can be easily calculated, the impact of rebranding on a company's revenue may be more complex to analyze. Monitoring ROMI before and after rebranding will help determine whether the efforts justified the costs.
How to calculate ROMI?
To calculate ROMI, it is necessary to know the revenue that the business earned from marketing actions, as well as the expenses for those actions. Let's consider an example of calculating ROMI for an online sneaker store:
- 40 pairs of shoes sold at an average price of 9000 rubles.
- Total revenue for the month: 40 * 9000 = 360000 rubles.
Now let's calculate the marketing expenses for the month:
- Targeted advertising: 30000 rubles.
- Contextual advertising: 25000 rubles.
- Publication in an online publication: 10000 rubles.
- Advertising with a blogger: 50000 rubles.
- Email newsletter service: 2000 rubles.
- Salary of the marketer: 43000 rubles.
- Total: 160000 rubles.
Now we substitute the data into the formula: (360000 – 160000) / 160000 * 100% = 125%. This means that marketing expenses are covered, bringing 1 ruble and 25 kopecks in profit for every ruble invested.
ROMI, ROI, and ROAS: what is the difference?
ROMI, ROI, and ROAS are important metrics, but each serves different purposes. ROI (return on investment) reflects the overall profit of the company from a product or direction in relation to all costs, including not only marketing but also material purchases, salaries, rent, and other expenses.
The formula for ROI is almost identical:
ROI = (Gross revenue – Expenses) / Expenses * 100%
ROAS (return on advertising spend) is used for more specific calculations, allowing the assessment of the profitability of a particular advertising channel. For example, it can be used to compare the effectiveness of targeted and contextual advertising or specific advertising campaigns.
The ROAS formula looks like this:
ROAS = Revenue from advertising / Advertising expenses * 100%
Typically, marketers do not calculate ROAS independently, as this figure is automatically displayed in analytics systems such as Google Analytics and Yandex Metrica. However, ROMI and ROI require more careful calculations, as they include data from various sources.