Your advertising spend is only a fraction of your investment. To discover the true ROI of your marketing efforts, you need more than one measure of vanity.
Measuring campaign performance is an integral part of marketing optimization. Choosing KPIs for your campaign can have a big impact on how you measure and think about your failure or success. While visibility and engagement metrics (impressions, CTR, clickthrough rate) help measure your reach, your return on investment (CPC, cost per conversion, ROAS, ROMI) helps you to objectively determine your campaign’s revenue contribution.
What is the return on advertising spend?
ROAS is the easiest way to calculate how much you have earned from your marketing campaign.
Here’s how to calculate it: take your sales for the campaign period and divide by how much you spent on ads.
Due to its limited scope, it can hardly be considered a true ROI measure.
What is the return on marketing investment?
ROMI, on the other hand, is a subset of the ROI measure – it does not analyze all the expenses associated with your business, but the expenses associated with your marketing efforts.
In this article, ROMI with COGS, but your decision must be based on the details of your business. Most importantly, follow a calculation method to make sure you are comparing apples to apples.
With or without COGS, ROMI takes into account all the costs of your marketing campaign, not just your advertising expenses. This includes how much you pay for content creation, brokerage fees, discounts, etc.
OK, so how does that make a difference?
It is important to remember that profitability is not always your primary motivator, regardless of how you calculate your marketing costs. One of them is the awareness campaigns, whose investment is focused on the long term; there are no expectations of immediate return. However, ROMI continues to provide a much more complete and accurate picture of the progress of its marketing campaign.
Why is ROMI better?
The big problem with ROAS is that it gives credit to the ad network for all of its sales revenue, ignoring the inconvenient costs and calculations that tell a different story.
ROMI serves as a much-needed reality test. It tells you what the real return on your marketing investment is and allows you to contextualize your advertising spend: Obviously, your Facebook ads are getting a lot of appeals, but if the campaign fails in any way, you should know this before you go your advertising spends.
How does everything work in practice?
This attention to detail was extremely important in two campaigns by the snack brand Mattessons Fridge Raiders in 2013 and 2014-2015.
For the first campaign, the brand had a great idea. Using Facebook ads linked to a longer YouTube video, he came up with ideas for a ‘snack machine’ that people can eat without using their hands, to avoid getting their fingers dirty with keyboards, phones, and the like.
Even if your marketing campaigns appear to be reaching your marketing goals in the short term, it is important to dive in to examine each machine’s equipment.
Perhaps your advertising spend is worth it. Your general marketing campaign may be good, but your Facebook line item isn’t really contributing to your success. In fact, it can create huge costs that don’t translate directly into sales.
Whatever the truth, you need to be able to fully analyze it if you want to optimize your spending and increase your investment ROI over time.
ROAS won’t let you do that … but ROMI will.