Return on Marketing Investment (ROMI)

How is ROMI calculated?

Return on marketing investment (ROMI) is calculated with the following formula:

ROMI = (revenue increase from marketing − marketing costs) / marketing costs

In this formula, the revenue increase from marketing stands for the additional revenue generated by the marketing activities. Marketing costs comprise all spending on running the campaign. ROMI is often expressed as a ratio or percentage. If it is greater than 0, the marketing activities have generated more additional revenue than they cost. A ROMI of 1 corresponds to 100%.

ROMI with contribution margin

The Universal Marketing Dictionary of the Marketing Accountability Standards Board calculates with contribution margin. This version shows whether marketing also pays for itself on the bottom line:

ROMI = (revenue increase × contribution margin % − marketing costs) / marketing costs

So whenever a ROMI is quoted, check which version is meant. The calculator on this page uses the revenue version.

The significance of ROMI in marketing

ROMI helps companies assess the success of individual campaigns and make informed decisions about allocating marketing budgets. A high ROMI indicates that a campaign brought in a lot of additional revenue relative to its costs. A low ROMI shows that the investment may have been inefficient.

ROMI calculation using a marketing example

Worked example with assumed values: a company launched an online advertising campaign to promote a new product. The campaign ran for a month and the company invested 10,000 euros in it. Before the campaign, the company’s average monthly revenue was 50,000 euros. After the campaign, revenue rose to 70,000 euros.

Steps for calculating simple ROMI:

Determining the revenue increase:
Revenue before the campaign: 50,000 euros
Revenue after the campaign: 70,000 euros
Revenue increase: 70,000 euros − 50,000 euros = 20,000 euros

Marketing costs:
The total marketing costs for the campaign were 10,000 euros.

Calculating ROMI:

ROMI = (revenue increase − marketing costs) / marketing costs

ROMI = (€20,000 − €10,000) / €10,000 = 1

Interpretation:
A ROMI of 1 means that the marketing campaign brought in twice its costs in additional revenue, that is 20,000 euros of revenue increase at a cost of 10,000 euros. After deducting marketing costs, 10,000 euros remain, exactly what the campaign cost.

A ROMI of 0 means that the additional revenue just covers the marketing costs. A negative ROMI indicates that the campaign brought in less additional revenue than it cost. Because the formula uses revenue, a positive ROMI is not yet proof of profit. For a view of profit, replace the revenue increase with the additional contribution margin.

The same campaign with contribution margin

With an assumed contribution margin of 40%, the 20,000 euros of revenue increase bring in 8,000 euros of contribution margin.

ROMI = (€20,000 × 0.40 − €10,000) / €10,000 = −0.2

A ROMI of 1 therefore becomes a ROMI of −0.2 or −20%. The campaign cost more than its contribution margin brought in. Break-even is marketing costs divided by contribution margin, here 10,000 euros / 0.40 = 25,000 euros of revenue increase.

Determining additional revenue

ROMI is only as good as the figure for the revenue increase. It means the revenue that would not have come about without the marketing. You can estimate it in three ways:

Revenue that the ad account assigns to a campaign is not the same as additional revenue. It also includes purchases that would have happened without an ad. Our entry on the attribution model describes how revenue is assigned to individual channels.

ROMI and related metrics compared

The worked example uses the assumed values from above: €20,000 of additional revenue, all of it assigned to the campaign, €10,000 of costs and a 40% contribution margin.

If revenue and costs are identical for ROAS and ROMI, then ROMI = ROAS − 1. This applies if all advertising revenue is additional and all costs are advertising costs.

ROMI calculator

Use this tool to calculate your return on marketing investment (ROMI) easily. Under revenue increase, enter the additional revenue from the campaign, and under marketing costs, the costs of the campaign. ROMI is worked out automatically from these.

Advantages and limitations of ROMI

Advantages

• Measurability of marketing efficiency: ROMI shows in one clear figure how effectively marketing spend is converted into additional revenue.
• Budget optimisation: companies can decide which activities receive more budget and which are reduced or stopped.
• Comparability: different campaigns, channels or strategies can be compared with each other.
• Strategic decision-making: analysing ROMI can help improve overall return on investment (ROI) and achieve long-term growth targets.
• Promotes accountability: marketing teams align their spending and strategies more closely with a positive contribution to company success.

Limitations

• Short-term focus: ROMI often concentrates on short-term results and does not always take into account the long-term value of customer relationships, such as customer lifetime value.
• Difficulty of exact measurement: the revenue increase is hard to assign to a particular campaign when several campaigns run at once or external factors play a part. There is more under attribution model.
• No account of intangible benefits: ROMI only measures financial results. Brand awareness, customer retention or brand loyalty are not included, although they can be valuable in the long term.
• Varying product costs: if product costs differ greatly, a standardised ROMI can be misleading.
• Lack of consideration of market conditions: market fluctuations, seasonality or competition can distort ROMI, because they affect revenue without being connected with the campaign.

ROMI is therefore a useful instrument, but it should be considered together with other metrics.

Typical mistakes when calculating ROMI

• Including total revenue: only additional revenue belongs in the formula. Revenue that would have come in anyway makes ROMI look too high.
• Recording costs incompletely: as well as the media budget, creative work, agency fees, tools and internal working time also count if they can be assigned to the campaign.
• Too short a period: long decision-making processes or repeat purchases only show up in revenue later.
• Overlapping campaigns: if several campaigns run at once, count the same additional revenue only once.
• Confusing ratio and percentage: a ROMI of 1 corresponds to 100%, a ROMI of 0.1 to only 10%.

Increasing and optimising ROMI

Each marketing channel offers its own ways to improve ROMI:

1. Content marketing: create content that matches the needs and interests of the target audience. Continuous analysis and optimisation helps you recognise the best formats and topics and use them more.
2. Social media marketing: align content and ads with the interests and demographics of the target audience. Monitor the performance of posts and campaigns on an ongoing basis.
3. SEO (search engine optimisation): optimise the website for relevant keywords. Technical SEO, content optimisation and link building increase visibility. The traffic does not incur click costs as with paid advertising, but work on the website also costs budget.
4. SEA (search engine advertising): refine campaigns on an ongoing basis through A/B tests, keyword optimisation and suitable targeting. Analyse the conversion data and set higher bids for keywords with a high ROI.
5. Email marketing: personalised, segmented campaigns can increase ROMI. Automated lead-nurturing sequences and suitable follow-ups can increase revenue and lower costs.
6. Affiliate marketing: work with affiliates who address strong, relevant audiences. A suitable commission structure and regular reviews keep costs under control.
7. Influencer marketing: carefully choose influencers who have an authentic connection with the target audience. Negotiate clear terms and measure performance for each person.
8. Event marketing: align events with the target audience and arrange a follow-up, for example by email or with special offers. Closely linking online and offline activities can further increase efficiency.