The ROMI Formula: How To Calculate It? Real case

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 dollar invested makes.

Why calculate the ROMI?

The ROMI aims 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.

You can reallocate your budget into more cost-effective campaigns when you see how much you spend on advertising and what revenue it generates.

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:

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 campaign	Campaign revenue, $	Campaign costs, $	ROMI
Instagram	242	68,5	253%
Emails	41	22,5	82,2%
Google Ads	16	69	-76,8%

Easily calculate the ROMI of your SEO, email, PPC and CPA activities with the Dashly template

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The ROMI of Instagram ads

Let’s say customers 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 number of advertising expenses from income: 270 — 69 = $201.

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

201 / 69 * 100 = 291,3%

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

The ROMI of emails

Suppose customers bought five 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 number 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 $18.

(14 — 5) * 2= $18

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

Divide the number obtained by the number 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 demonstrates how various campaigns influence your sales. It lets you 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 dollar pays off and generates income.

• The ROMI of 100% is a breakeven point. This value means that your investments pay off without any profit.
• Your marketing investments don’t pay off if your ROMI is below 100%.
• 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.

In some cases, ROMI skyrockets. Check out the case of our EdTech customer that invested in chatbots and achieved 16,000% ROMI. Their Dashly subscription paid off in just five leads!

You can get significant ROMI figures for the marketing activities such as lead generation, customer engagement, or conversion rate optimization too!

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 long-term brand value into account.

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

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

When calculating the ROMI, consider all factors influencing your sales. Suppose 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 selling expensive household appliances, we don’t suggest you rely on the ROMI. Customers may see your ads in these industries and only purchase in several months. You’ll account for marketing costs in one month and the income in another. The ROMI may differ depending on the reporting period and won’t show an accurate 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 sales value to ensure 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 need your marketing expenses and revenues to calculate the metric. Here’s an example of a Captain Calculator:

And here is Dashly calculator:

Evaluate the effectiveness of your marketing campaigns with the ROMI calculator

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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 the return ratio of all investments. Unlike the ROMI, that only considers marketing expenses, the ROI helps you evaluate the overall profitability of your project considering all investments. You need to consider all project expenses and revenues it generates to calculate the ROI.

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

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%, you only paid off your expenses but made no profit.

Get your copy of the ROMI calculator

ROMI is essential for the assessment of your marketing activities. It helps you figure out what works and what doesn’t, so you can eliminate failed ideas and scale the successful ones.

FAQ

Further reading on marketing metrics

• The ROI formula: How to Calculate It and Why Your Marketing Needs It
• Calculating the LTV: Why Is This Metric Special and Why Do You Need It?
• ARPU: definition and calculation
• The best way to collect emails: 5 top-notch methods unveiled
• 3-step guide on inbound lead qualification: how to qualify inbound leads on autopilot
• Choose your ideal lead nurturing platform: Top 10 software tested by experts