Since almost everything on the web can be measurable, CMOS, digital marketers, and marketing teams often rely on numbers to benchmark their results. Calculating the return on investment of digital efforts can allow marketers to validate their hypotheses, optimize their actions, or better target their marketing objectives.
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The Return on Marketing Investment (ROMI) calculates the revenue marketing efforts generate compared to the marketing budget. It's an excellent benchmark for marketing performance and is used to justify total marketing activities, better distribute marketing budgets, and measure return on advertising spending.
The most basic way to calculate a marketing campaign’s ROI is to take the sales growth from a business or product line, subtract the marketing spend, and then divide the result by the marketing cost, following the ROMI formula.
When calculating ROI, it’s essential to factor in production costs for a more detailed marketing effectiveness analysis. If you want to measure ROI for longer-term projects, you can compare future asset value or the projected cash flow from spending assets.
But if you want to maximize your ROMI, you need to be able to calculate it across every sub-channel of your business. In this case, marketers use attribution. Marketing attribution identifies user actions (touchpoints or user journeys) your clients will go through before buying. It helps assign which channels should get the credit for the sale, ensuring that marketing expenditures are appropriately allocated.
That said, the rule of thumb for good ROMI is typically a 5:1 ratio, with exceptional ROI being considered around a 10:1 ratio. However, because every organization is different, it’s essential to consider the unique overhead costs, margins, and industry factors and standards unique to the sector of activity.
Anything below a 2:1 ratio is considered unprofitable, as the costs to produce and distribute goods/services often mean organizations will break even with their spending and returns. It’s important to assess both short-term results and the overall effects of marketing. Other metrics to consider when evaluating the negative impact of marketing investment are the churn rate, organic sales, and click-through rate. These can easily be found in your Google Analytics account or any CRM you use.
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Here are some of the best practices you should remember to improve your return on marketing investment (ROMI).
Get to know your target audience
To optimize your ROMI, you should know your personas better than yourself! Knowing exactly who you’re talking to and what their digital habits are will allow you to make better marketing initiatives and, therefore, optimize your expenditures. It could also help your brand awareness in the long run.
Use A/B testing
Although it would be nice to look into a crystal ball to determine exactly what will convert your customers, it’s not yet possible. Instead, we recommend A/B testing, creating two different ads or landing pages to see which converts best. This approach allows for the optimization of your campaigns by testing different strategies. The bottom line is that you could try posting at different periods or targeting different market shares to improve retention and better manage the allocation of your marketing resources.
Track it alongside other metrics
To better understand marketing's effects, calculate the ROMI alongside other metrics, such as cost per acquisition, cost per lead, conversion rate, and customer lifetime value (CLV). These numbers will allow you to gain a broader perspective on your spending attribution and make necessary changes.
Although Return on marketing investment is widely used, there are multiple synonyms that can be used. Here are a few:
Return on investment (ROI), Return on advertising investment (ROAI), Return on ad spend (ROAS), Return on advertising spend (ROAS), Marketing return on investment (MROI), Marketing ROI, Return on investment (ROI) of Marketing, Campaign return on investment (CROI)
