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Return on Marketing Investment, often abbreviated as ROMI, is a metric that measures the efficiency of a company’s marketing efforts. It originated in the 1990s and became widely recognized in the 2000s thanks to contributions from experts like Guy Powell, James Lenskold and Rex Briggs. ROMI is calculated using a specific formula, which takes into account incremental revenue, contribution margin, and marketing expenditure. There are two primary methods for calculating ROMI – short-term and long-term. The short-term approach focuses on immediate sales^[3] and profits, while the long-term takes into account intangible factors like brand awareness^[2]. ROMI is especially crucial in digital marketing^[1], where data analytics can help precisely measure the return on marketing investments. However, it’s important to consider both short-term and long-term effects when evaluating ROMI, as focusing solely on immediate returns could overlook the importance of long-term brand^[4] building.

Terms definitions

1. ↑ digital marketing. Digital marketing is a comprehensive term that represents the use of digital technologies, primarily the Internet, to promote products or brands. This concept traces back to the 1990s, with significant milestones like the first clickable banner ad and the development of marketing automation. Core strategies in this field include SEO, SEM, content marketing, and social media marketing. Digital marketing also plays a pivotal role in brand awareness, influencing consumer behavior and decision-making. Despite challenges like privacy concerns and the need for platform adaptation, innovative strategies like data-driven advertising and remarketing continue to evolve. This marketing approach also encourages the use of influencers and online channels to enhance brand visibility and engage with consumers effectively. In the modern era, digital marketing is not only about selling products; it's about building a unique brand identity and establishing a strong connection with the audience.

2. ↑ brand awareness. Brand awareness is a fundamental concept in marketing that refers to the level of familiarity consumers have with a particular brand. It plays a significant role in their purchasing decisions, affecting the sustainability and growth of a business. Brand awareness is divided into two types: brand recall, the ability of consumers to remember a brand from memory when prompted with a product category, and brand recognition, where consumers confirm their previous exposure to a brand. It is typically measured using surveys, recall tests, and other metrics such as brand association and salience. Advertising is a crucial tool in building brand awareness and converting consumer interest into sales. Notably, strong brand awareness can enhance brand equity, which is the cumulative value derived from a brand's name and logo, including factors like brand loyalty and perceived quality.

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Glossary

Return on marketing investment (Wikipedia)

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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 other 'return-on-investment' (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'. Marketing spending is typically expensed in the current period (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 justified if the ROMI is positive. In a survey of nearly 200 senior marketing managers, nearly 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. Marketers are under more and more pressure to "show a return" on their activities.

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