What is ROMI?
By: Seth Arnold
January 26, 2022 | Digital Advertising
In the not-so-long-ago and closer-than-you’d-believe past, you knew marketing was working because sales went up and more revenue was coming in. That was how success was measured. As long as money was flowing in, nobody paid much attention to what was being spent. “You’ve got to spend money to make money” was the gospel truth and it was generally accepted that a decent amount of the marketing budget would go up in smoke.
And then digital marketing came in and turned everything on its head with instantly-available data and up to the hour budget tracking. In the here and now, clients, CMOs, CSOs, COOs and the bean-counters in finance want to see the nitty-gritty details that show the efforts are working.
It’s no longer enough to say that marketing is working–you’ve got to prove it. ROMI (return on marketing investment) is how you do it.
Let’s Start from Square-One
If you’ve never heard of ROMI before, that’s okay. It isn’t the name of some new medicine with a side-effects list a mile long, or the latest over-hyped Tik Tok influencer-turned-popstar. You probably know it by another name – return on ad-spend.
Stripped down to the most basic parts, ROMI measures how well marketing efforts are performing against specific goals. It can be hyper-focused on a specific campaign or a high-level collection of the scope of all marketing activity.
It’s not just a static number – it helps you see what you’re doing well and where you could change to do better. If marketing was a car, ROMI is the dashboard.
The Magic Formula
Knowing how to find your return on marketing investment is important. In the simplest form, it’s the difference between the money spent and the performance toward the goal you’re measuring against.
For example, Revenue Generated Marketing Dollars Spent = X is what you’d use if you were looking for a dollars-and-cents figure–seeing the result in terms of money is what gets most people excited anyways).
For anyone who geeks out about analytics and statistics and percentages and formulas (or for anyone who wants to look like a genius by throwing out impressive sounding numbers), this is the part that gets exciting.
Because ROMI is typically shown using a ratio, you’d use a formula that looks like this to find your magic number: (Revenue Growth – Marketing Spend) / Marketing Spend = ROMI.
Depending on the goal you’re working toward–generating new sales leads, increasing social media followers, driving new email subscribers, etc.–plug in that number instead of revenue growth.
Tada! That was pretty easy, right?
Why The ROMI Story Matters
Marketing is as much a game of data as it is an exercise in creativity. Updating budgets and margins, measuring campaign success, justifying costs…all those things are influenced by ROMI. Knowing where you’ve been, what you’ve tried and what has worked well is the roadmap that takes marketing teams from where they are to where they want to go.
Remember the stakeholders we mentioned earlier? ROMI is the secret sauce that keeps everyone happy.
Happy clients are loyal clients and loyal clients are profitable clients. Happy executives have more confidence in what marketing is doing and are less skeptical about loosening the purse strings when needed. When clients are happy and the C-Suite is happy, marketers are happy.
It’s like the circle of life, but with ROMI instead of a lion cub!
What makes a good ROMI? That’s easy – a greater amount of return vs. the amount of investment. The higher the number, the better your marketing efforts are performing.
A good ratio can change depending on a number of factors. 5:1 is a good rule of thumb for a good ratio, and a 10:1 return is phenomenal. In most cases, a 2:1 ratio is the break-even point.
It’s All About the Journey
ROMI isn’t a one-and-done kinda thing. It’s always changing and evolving. Getting started with it is easy–getting the most juice from each squeeze involves a little more work.
Using marketing ROI to your advantage starts with setting clear goals, establishing budgets and costs, and using a solid marketing analytics platform. Where you go from there is an adventure!
Drop us a line, and we’ll chat about how we can create successful marketing strategies together that deliver tangible business benefits.