Return On Marketing
The first, short-term ROMI, is used as a simple index measuring the dollars of revenue (or market share, contribution margin or other desired outputs) for every dollar of marketing spend. For example, if a company spends $10,000 on a direct mail piece and it delivers $50,000 in incremental revenue, then the ROMI factor is 5.0. If the incremental contribution margin for that $50,000 in revenue is 60%, then the margin ROMI (the incremental margin for $10,000 of marketing spent is $30,000 (= $50,000 x 60%). Of which, the $10,000 spent on direct mail advertising will be subtracted and the difference will be divided by the same $100,000 . Every dollar expended in direct mail advertising translates an additional $2 on the company’s bottom-line.
The value of the first ROMI is in its simplicity. In most cases a simple determination of revenue per dollar spent for each marketing activity can be sufficient to help make important decisions to improve the entire marketing mix.
The most common Short Term approach to measuring ROMI is by applying Marketing Mix Modeling techniques to separate out the incremental sales effects of marketing investment.