When I’ve spoken on this topic in front of fellow marketing professionals, my audience has typically answered the question with statistics featuring increases in Facebook “likes” or number of Twitter followers.
Unfortunately, unless a Facebook “like” converts to a completed contact form on your website, this metric otherwise has no impact on sales.
Let’s face it… most heads of companies look at marketing as an expense. When sales or profits are down, expenses are usually reduced or cut. My philosophy is marketing is an investment, not an expense to be cut. Like any investment, you should expect a return. So, how do you measure Return on Marketing Investment (ROMI)?
There are several versions of calculating ROMI, but the typical ROMI formula looks like this:
ROI = (gain – cost) / cost
For example: Let’s assume that you started a new advertising program, and it cost $50,000 in its first year, and it gained $600,000 in incremental sales during the same year, and that the gross profit from these sales was $200,000.
If you subtract your incremental advertising dollars ($50,000) from the profit generated ($200,000), you see that you have generated $150,000 of net operating profit.
Your ROI is
($200,000 – $50,000) / $50,000 = 3 = 300 percent
In other words, on average, each dollar you spent on the new program brought in three dollars of profit.
Benefits of ROMI
The benefits of ROMI are very real. ROMI allows you to: Continue reading