What are the differences between ROAS, ROI and ROMI?
ROAS is an indicator for calculating the return on investment in an advertising campaign. This parameter is a measure of the profitability of investments in PR. It is used to evaluate the effectiveness of a separate campaign, a group of advertisements, one specific or even a keyword.
That is, this coefficient shows whether it was possible to obtain revenue that exceeds costs. It is calculated by dividing the profit from the campaign by the costs associated with a specific parameter.
ROI is a classic indicator rich people data package of the return on investment in business. ROMI is the same as the above parameter, but is calculated exclusively for marketing investments. There is often confusion between ROMI and ROI. These indicators are often interchanged. This is not a serious mistake. Both concepts are interpreted almost identically and are calculated using the same formula. However, it is important to note that ROMI evaluates the profitability of marketing, while ROI evaluates the business as a whole (that is why the “M” symbol is missing).
It is especially important not to confuse ROMI and ROAS . This can be misleading and lead to incorrect conclusions. In successful marketing campaigns, ROMI should be above zero, and ROAS should exceed 100%. If ROMI is 100%, this indicates that the profit has doubled compared to the costs, and with ROAS 100%, you have only covered the costs.
When is ROMI ratio useless?
The traditional method of calculating return on investment is not applicable to industries that offer expensive goods and services. For example, investments in advertising luxury homes in a suburban village are very significant, but there will be no quick return. Buyers in this segment take a long time to make decisions, compare options and visit properties. During the first 2-3 months, the ROMI indicator may be low. However, when the first successful deal is completed, the proceeds can cover all marketing costs for a year in advance.
The indicator in question cannot be considered objective when analyzing the profitability of projects operating in aggregate. When considering individual channels, it is difficult to determine their final efficiency as a whole.
If there is no sufficient information and verified data, then the ROMI calculation is useless. Since the obtained values will differ significantly from the real situation in the project (as a whole).
What level of ratio should be considered good?
Let's look at several values of the return on marketing investment indicator:
ROMI at 100% indicates the break-even point: the marketing project has paid off, but the company has not received any additional profit. This ROMI value is not considered normal. In real business, this result of promotion brings losses, since the calculation formula does not include a full range of costs. The situation can be improved by analyzing all marketing components and identifying those that hinder business development.
ROMI exceeds 100%. This is a positive indicator. Marketing efforts bring profit, funds invested in promotion return with a multiple increase.
ROMI is below 100%. This means that the money spent on marketing did not pay off. More was spent on promotion than was earned from sales. There are several reasons for this situation. This could be due to the lack of uniqueness of the project, or to miscalculations in the analysis of the prospects of the market segment. It is necessary to take a balanced approach to assessing the current situation. Compare other business indicators to decide on the advisability of further work in the chosen direction.
Calculating the ROMI coefficient allows you to identify miscalculations in the company's marketing activity. Based on it, you can develop an effective advertising strategy. Timely identification of problems in marketing allows the enterprise to make work more efficient and create conditions under which marketing activity increases the value of the entire business.