Return on investment (ROI) is simply described as the net return achieved on the funds employed to produce revenue in a venture. Return on marketing investment (ROMI) is the contribution to profit attributable to marketing (net of marketing spending), divided by the marketing ‘invested’ or risked. ROMI is not like the ROI metrics because marketing is not the same kind of investment. Instead of money that is ‘tied’ up in plants and inventories (often considered capital expenditure or CAPEX, marketing funds are typically ‘risked’ and typically expensed in the current period as operational expenditure or OPEX.
The idea of measuring the market’s response in terms of sales and profits is not new, but terms such as marketing ROI and ROMI are used more frequently now than in past periods. Usually, marketing spending will be deemed as justified if the ROMI is positive. In a recent survey of nearly 200 senior marketing managers, close to half responded that they found the ROMI metric very useful.
The purpose of ROMI is to measure the degree to which spending on marketing contributes to profits. The rising costs of running a business are causing business owners to be more and more pressured to “show a return” on their marketing activities. Search Engine Optimisation (SEO) falls into this ‘marketing spend’ and and we are often asked how this should be quantified in terms of ROMI. Here are some thoughts on how it should be treated: