How to calculate return on marketing investment (ROMI)

how to calculate romi
how to calculate return on marketing investment (romi)

If you want to measure the overall effectiveness of a marketing campaign a return on marketing investment (ROMI) is the calculation you will want to run for your business.

ROMI is a subset of ROI (return on investment) and in its basic form, it looks at revenue increase compared to the investment that was made by the business to get there.

Years ago it was difficult to see where the increase in revenue was coming from but these days with tracking pixels it’s much easier to see the users journey through your website mainly the entry points (a landing page from an ad or SEO marketing) to the exit points (checkout or contact page). 

By following a users journey from discovery to sale it’s much easier to see the effectiveness of a marketing campaign.

How is ROMI used by marketers?

romi calculation example

Some of the businesses that we have talked to in the past have been running pay per click ads, social media campaigns, email marketing and organic SEO and have had no idea which of these was bringing in the most revenue for the company or which was wasting valuable resources.

Understanding where your revenue comes from and the marketing spend can allow a business to focus on the areas which can bring them more revenue while decreasing the spend in other areas which are ineffective.

When a business knows its ROMI it can then justify its marketing spend and distribute the marketing budgets across the areas which are going to be the most profitable for that business.

ROMI is also useful for benchmarking a campaign and then using that data to improve future campaigns.  

Calculating return on marketing investment (ROMI)

To calculate the return on marketing investment and see if your investment was profitable or you ended up wasting money you can use the following formula:

ROMI Calculation Example

ROMI = ((income from marketing – marketing expenditures)/ marketing expenditures) * 100

You can use the above formula to calculate the ROMI from a campaign. If you want to calculate the revenue you would also include the costs of the goods that you sell. For that calculation you can use the following formula:

ROMI = ((income from marketing – cost of goods – marketing expenditures) / marketing expenditures) * 100.

Depending on your situation you can use either to calculate your return on marketing investment.  

A real-life example could look something like this:

A monthly SEO marketing spend could cost £2000, which generates £50,000 in sales. Without factoring in the cost of goods using the ROMI formula it would look like this:

ROMI = ((50,000 – 2000) / 2000) * 100 = 2400%

In this instance for every £1 spent on marketing, you would get a return of £24.

Why is ROMI important to a business?

While some marketing agencies thrive on creating memorable campaigns it’s also important to be able to prove if a campaign was a success or not.  

When you can work out your ROMI it’s then much easier to make a decision to keep working on that campaign or to try another avenue. Using the example above for every £1 spent you should expect to earn £24 back, with this data you can then make educated decisions when considering the budget for future campaigns.

Without this data, money may be invested in the wrong area which will slow the growth of your business.

Challenges of using ROMI as a metric.

As you can see from above, calculating your ROMI has many advantages and can help your business decide where to spend its marketing budget, but there are challenges of using ROMI as a marketing success metric and one of which is marketing measurements are influenced by a wide range of factors which are outside of your control.

The weather, seasonality, natural disasters, viruses (Covid-19, I’m looking at you!), sporting events and so much more can have an impact on your sales and marketing. 

Marketers can also be narrow-minded when it comes to metrics and may only focus on the short term gains, in our example above you may have generated £50,000 in sales but there could be a high lifetime value associated with those sales. 

Let’s say in the example the company spent £50,000 and made £50,000 back, with costs this campaign would have been a loss on paper, however, if the lifetime value of these sales meant many repeat sales over multiple years this could be a very successful campaign.

The return on marketing investment doesn’t take this into consideration and it also fails to consider the brand awareness that this campaign would have achieved.

ROI vs ROMI vs ROAS

return on marketing investment

We have included this section within the post because we often hear them being interchanged with each other. ROI or Return On Investment is the general term used when talking about the money invested vs the money that was generated from the investment.  

ROAS or Return on Ad Spend is another marketing term that is interchangeable with ROMI and it’s generally used within PPC agencies or advertising agencies rather than SEO agencies.  

ROAS is calculated in the following manner:

ROAS = income from marketing / marketing investment

Conclusion

If you choose to market your product or service through PPC, SEO, Email, Cold Calling or Social media it’s important for a company to know how much costs are involved and how much revenue is generated through that channel.

When a business knows how to calculate return on marketing investment (ROMI) they can then work out which channels are bringing in the most profit. By using ROMI you are able to see if a campaign is worth continuing and can even use the campaign’s metrics as a benchmark in the future.  

Marketers should be conscious of any outside influences that could have a negative effect on the success of their campaigns. Natural disaster, viruses, diseases, sporting events and seasonal trends can all have an effect on a campaign one way or another.

At Weeare we provide organic SEO marketing services to our clients, if you would like to improve your websites organic reach please get in touch with us and we can provide you with a free website and marketing video audit.

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