Analytics

The ROMI Formula: How To Calculate It?

romi formula

Content:

  1. What’s the ROMI?
  2. Why calculate the ROMI?
  3. The ROMI formula
  4. How high should the ROMI be?
  5. Who should calculate the ROMI and when?
  6. I’ve made my ROMI calculations. What’s next?
  7. How to calculate the ROMI online
  8. Are ROI, ROMI, and ROAS different?
  9. FAQ
  10. Further reading on marketing metrics

Which ROMI is good? What does a 100% ROMI mean? Why is the ROMI important to know and what should you do after you calculate it? Stay tuned to find out!

The ROMI formula helps you measure the return on your investments in marketing. This is one of the most important marketing KPI. In this article, we’ll figure out how you can use this metric to evaluate your marketing performance. You’ll also know how to calculate and use it to enhance your business.

What’s the ROMI?

ROMI stands for Return on Marketing Investment. This metric shows how cost-effective your marketing investments are. You’ll see how well your ads, SEO, emails, and blog pay off. The ROMI only takes marketing expenses into account. It doesn’t consider production costs, payroll, and rent.

Let’s say we’re making designer lamps and promoting them on Instagram. We also send emails. We’ll use the ROMI formula to see which channels are cost-effective and which are not. We’ll see how much money each ruble invested makes.

Why calculate the ROMI?

The purpose of the ROMI is to measure how marketing investments influence your revenue. Using the ROMI, you can evaluate which promotion tools are profit-making and which are loss-making.

When you see how much you spend on advertising and what revenue it generates, you’ll be able to reallocate your budget into more cost-effective campaigns.

The ROMI formula

Every business is different in the way they calculate the ROMI. It depends on what exactly you want to find out. The basic ROMI formula is this:

formula romi return on marketing investments

Let’s calculate the ROMI using our designer lamp case. We launched ads on Instagram, and we also launched emails. Using Google Analytics, we can obtain the data we need to calculate the ROMI.

Ad campaignCampaign revenue, $Campaign costs, $ROMI
Instagram24268,5253%
Emails4122,582,2%
Yandex.Direct1669-76,8%
The “Lamp” project
The “Lamp” project

The ROMI of Instagram ads

Let’s say customers who came from Instagram bought 30 lamps for $14 each. The net cost of one lamp is $5. The income generated is $270.

(14 — 5)*30 = 270$

Then let’s deduct the amount of advertising expenses from income: 270 — 69 = 201$.

Then we divide the number obtained by the amount of advertising expenses and multiply by 100%:

201 / 69 * 100 = 291,3%

The ROMI is 291,3% which means that Instagram ads are cost-effective as they generate about 2,9 dollars for each dollar invested.

The ROMI of emails

Suppose customers bought 5 lamps after they got emails from you. The income generated is 45$.

(14 — 5) * 5 = 45$

Then, deduct advertising expenses from your income: 45 — 23 = 22$.

Divide the number obtained by the amount of advertising expenses and then multiply by 100%:

22 / 23 * 100 = 95,6%

The ROMI of 95,6% means emails are not cost-effective, but at least we managed to recover our investments.

The ROMI of Google ads

Let’s say customers we acquired via Google Ads only bought 2 lamps. Your income is 1 180 ₽.

(14 — 5) * 2= 18$

Deduct the amount of advertising expenses from the income: 18 — 69 = −51$.

Divide the number obtained by the amount of advertising expenses and then multiply by 100%:

-51 / 69 * 100 = −73,9%

The negative ROMI means we earned less than we spent. This is bad.

We found out that Instagram ads were cost-effective while other channels were not. The ROMI clearly demonstrates how various campaigns influence your sales. It allows you to quickly optimize your advertising and invest in more cost-effective channels.

How high should the ROMI be?

Ideally, the ROMI should exceed 100%. This will mean that your advertising generates profits, each invested ruble pays off and generates income.

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  • The ROMI of 100% is a breakeven point. This value means that your investments pay off without any profit.
  • If your ROMI is below 100% it means your marketing investments don’t pay off.
  • The zero ROMI means you didn’t generate any profit and broke even.
  • The ROMI can also be negative up to −100%. In this case, it means you earned less than you invested.

Who should calculate the ROMI and when?

The ROMI is calculated where the outcome isn’t bound to any variables. Most often, it’s calculated where it refers to direct sales of goods and services. This metric allows you to evaluate the cost-effectiveness of your marketing activities and make managerial decisions. For instance, you can evaluate the performance of a particular promo. However, the ROMI formula doesn’t take the long-term brand value into account.

Sometimes you cannot relate a campaign to achieving certain goals. A customer can see your ads, go to your website and then close the tab. That same customer can find your website later again using a search engine and make a purchase. If that’s the case, it means your ads worked, though you won’t see it in your analytics.

You can’t always tell which messages were appealing and led to certain user actions, especially if you run multiple campaigns at once.

When calculating the ROMI, consider all factors influencing your sales. Let’s say you launched ads, and your best sales rep decided to quit or you faced supply issues. In that case, your ROMI may decrease, though it has nothing to do with your ad campaigns.

If you are in real estate, auto business, or you sell expensive household appliances, we don’t suggest you rely on the ROMI. In these industries, a customer may see your ads and only make a purchase in several months. You’ll account marketing costs in one month and the income in another one. In this case, the ROMI may differ depending on the reporting period and won’t show the real picture.

I’ve made my ROMI calculations. What’s next?

Suppose you figured out what channel performs best in your business. Now you can reallocate your investments into more cost-effective channels.

If you know your ROMI value, you can calculate your perfect cost-per-click, product price, average order value, and your sales value to make sure your investments pay off.

How to calculate the ROMI online

The major advantage of the ROMI formula is that it’s easy to calculate. However, you may miss some marketing expenses or get confused. These slips may influence your calculations dramatically, and you may get unreliable data. Use online calculators or Excel spreadsheets to mitigate these risks.

There are numerous ROMI calculators on the Internet. They are simple and only need your marketing expenses and revenues to calculate the metric. Here’s an example of a Capitan Calculator:

romi calculator

Are ROI, ROMI, and ROAS different?

The ROMI is often mistaken for ROI and ROAS. Let’s figure out why these metrics are different.

ROI is a return ratio of all investments. Unlike the ROMI that only takes marketing expenses into account, the ROI helps you evaluate the overall profitability of your project considering all investments. You need to take into account all expenses on the project and revenues it generates to calculate the ROI.

roi formula

ROAS (Return on Advertising Spend) is the return ratio of your advertising expenses. It only considers your expenses on particular advertising campaigns. The major objective of this formula is to find out if a company makes profits using particular marketing tools.

roas formula

It’s essential not to mistake the ROMI, ROI, and ROAS for one another as it may lead to grave mistakes. If the ROMI and the ROI equal 100%, it means that you earned twice as much as you spent. If the ROAS is 100%, this means you only paid off your expenses but didn’t make any profit.

FAQ

What is the ROMI?

Return on Marketing Investment is the return ratio of your marketing investments. The ROMI only considers marketing expenses and does not take production costs, payroll, and rent into account. If you want to evaluate the cost-effectiveness of all investments, use the ROI formula.

How to calculate the ROMI?

To calculate the ROMI, deduct your marketing expenses from the income generated from your campaigns, then divide the number by your marketing expenses and multiply the result by 100%. Take all your marketing expenses into account or you’ll get an unreliable result. Calculate the ROMI when no dramatic change happens in your company because it may influence sales dramatically. See our article to learn more about other important metrics.

The ROMI formula

ROMI = (Marketing revenue — Marketing expenses) / Marketing expenses * 100%. See our article to learn more about other important metrics.

Further reading on marketing metrics

Valerie Fenske
Author: Valerie Fenske
Growth Marketer
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