ROMI in practice
The diagram shows how a commercial air-conditioning
company might use ROMI to measure the performance
of a marketing campaign. The company spends $2,100
on a direct-mail promotion, which it aims at offices in three
major cities to generate sales leads and secure new contracts.
The direct-mail brochure contains a contact form offering
a 10 percent discount to new clients who respond to the
promotion within a specified period of time.
How it works
A subset of ROI (return on
investment), ROMI is one of the
key calculations businesses use to
work out the effectiveness of the
money they spend on marketing.
ROMI is measured by comparing
the revenue gained against the
investment made in marketing,
and is used to assess online
campaigns, in particular. This
calculation, however, only
reflects the direct impact
of marketing investment on
a business’s revenue and fails
to take into account other gains,
Many organizations gauge the effectiveness of the amount they
spend on marketing campaigns by measuring the return they make
on marketing investment, which is commonly known as ROMI.
Return on marketing
investment (ROMI)
4P3C1E framework Method
that uses several variables
to calculate effectiveness
of marketing campaign
Success metrics Use of
standard measure (metric) to
help manage marketing process
and to assess its performance
NEED TO KNOW
Marketing sends
4,000 direct mails
120 leads
respond to
offer
such as the word-of-mouth effect
on social media, which is more
difficult to quantify than the more
clear-cut response received from
advertising or direct mail.
As a result, many digital
marketers now factor lag time or
brand awareness into their ROMI
calculations in order to quantify
less tangible benefits and target
future campaigns more effectively.
@
MARKETING INVESTMENT
ROMI=
GROSS
PROFIT
MARKETING
INVESTMENT
–
US_242-243_Marketing_and_ROMI_Natalie.indd 242 10/11/2016 12:15
242 243
Results
Total new customers = 3
Average customer spend = $6,500 (after 10% discount
deducted from average $7,222 total spend)
Revenue from marketing = $19,500 (3 x $6,500)
Campaign spend = $2,100 + $2,167 (3 x $722) cost to
company of promotional discount = $4,267 total
ROMI = $4.57 per customer / per $ spent on campaign
how sales and marketing works
Business development
63%
of chief
marketing
officers
believe ROI
will become
the leading
measure
of success
during
2011–2016
14 qualified leads
(who are
a good fit for the
product) become
sales opportunities
3 of these
become
customers
$19,500
$4,267
$4.57=
LONG-TERM BENEFITS OF MARKETING INVESTMENT
Some aspects of marketing investment are difficult to measure immediately. The benefits
of providing excellent customer service, for example, or investing in research to help
marketers retain customers, may not be evident right away but will reap long-term profits.
MARKETING INVESTMENTS
RETURN ON MARKETING INVESTMENT
IMPROVED CUSTOMER VALUE AND SATISFACTION
INCREASED CUSTOMER LIFETIME
VALUES AND CUSTOMER LOYALTY
Cost of market investment
Increased customer attraction Increased customer retention
Run marketing campaigns
$
US_242-243_Marketing_and_ROMI_Natalie.indd 243 21/11/2014 16:27
242 243
Results
Total new customers = 3
Average customer spend = $6,500 (after 10% discount
deducted from average $7,222 total spend)
Revenue from marketing = $19,500 (3 x $6,500)
Campaign spend = $2,100 + $2,167 (3 x $722) cost to
company of promotional discount = $4,267 total
ROMI = $4.57 per customer / per $ spent on campaign
how sales and marketing works
Business development
63%
of chief
marketing
officers
believe ROI
will become
the leading
measure
of success
during
2011–2016
14 qualified leads
(who are
a good fit for the
product) become
sales opportunities
3 of these
become
customers
$19,500
$4,267
$4.57=
LONG-TERM BENEFITS OF MARKETING INVESTMENT
Some aspects of marketing investment are difficult to measure immediately. The benefits
of providing excellent customer service, for example, or investing in research to help
marketers retain customers, may not be evident right away but will reap long-term profits.
MARKETING INVESTMENTS
RETURN ON MARKETING INVESTMENT
IMPROVED CUSTOMER VALUE AND SATISFACTION
INCREASED CUSTOMER LIFETIME
VALUES AND CUSTOMER LOYALTY
Cost of market investment
Increased customer attraction Increased customer retention
Run marketing campaigns
$
US_242-243_Marketing_and_ROMI_Natalie.indd 243 21/11/2014 16:27
How it works
Every business has capital,
which refers to the physical,
tangible assets that appear
on the balance sheet of its
financial statements.
A business also has
intellectual capital—the
knowledge and skills inside the
company. This collective know-
how is hard to quantify and
measure, but it is essential to
a company’s ability to generate
revenue. For instance, management
must provide training and a
handover period for new staff
so that human capital does not
go down when people leave the
company, taking their expertise
with them. Management academics
have identified three main kinds
of intellectual capital: human,
structural, and customer.
Intellectual capital
The knowledge within a company that is
used to improve business performance
is known as its intellectual capital.
Human capital
The combined talents of the staff and
executives employed by the business.
It includes skills and abilities, drive,
creativity, and innovativeness, all of
which can be quite hard to measure.
Difficulty
Customer capital
Goodwill developed between a company
and its customers, reflected in customer
loyalty to the business and its products.
This relational capital can be extended to
suppliers, but is very hard to quantify.
Difficulty
H
U
M
A
N
I
N
T
E
L
L
E
C
T
V
O
L
U
M
E
O
F
P
R
A
C
T
I
C
A
L
E
X
P
E
R
I
E
N
C
E
T
O
P
T
A
L
E
N
T
E
X
T
E
R
N
A
L
L
I
N
K
S
H
O
W
L
O
N
G
R
E
L
A
T
I
O
N
S
H
I
P
S
L
A
S
T
M
A
R
K
E
T
R
E
L
A
T
I
O
N
S
H
I
P
S
No. 1
Strategic capital A company’s
knowledge of its market and the
business model needed for success
Intellectual property Creations
or inventions that are legally
recognized as belonging to
a particular entity or individual
on a balance sheet
Intangible capital All
knowledge assets belonging
to a business or organization; can
be audited under various systems
(see far right)
need to know
US_244-245_Intellectual_Capital.indd 244 21/11/2014 16:27
244 245
HOW SALES AND MARKETING WORKS
Business development
MEASURING INTELLECTUAL
CAPITAL
Structural
capital
The support structures developed
and held by the company, including
its own software, databases and
other information systems, patents,
copyrights, and trademarks.
Structural capital is non-physical,
so it can be hard to assess.
Watson Wyatt
index
A survey conducted
every two years in
public companies
to assess the value
of human capital
and HR practices.
Difficulty
“The only irreplaceable
capital an organization
possesses is
the knowledge
and ability of
its people.”
Andrew Carnegie
I
N
N
O
V
A
T
I
O
N
O
R
G
A
N
I
Z
A
T
I
O
N
A
L
R
O
U
T
I
N
E
S
I
N
T
E
R
N
A
L
L
I
N
K
S
Intellectual capital
monitor
Matrix that measures
the past effects,
present power, and
future potential of the
intellectual capital in
a company.
FIVA
The framework of
intangible valuation
areas (FIVA) allows a
business to identify
and link performance
measurements and
indicators to its
intangible value drivers.
Knowledge capital
scorecard
Method developed
by New York University
professor Baruch Lev
to rate a company’s
intellectual capital and
assess its contribution
to a company’s success.
Various different methods have been
developed to quantify and measure a
company’s intellectual capital.
8am
9am
10am
US_244-245_Intellectual_Capital.indd 245 09/11/2016 11:02
244 245
HOW SALES AND MARKETING WORKS
Business development
MEASURING INTELLECTUAL
CAPITAL
Structural
capital
The support structures developed
and held by the company, including
its own software, databases and
other information systems, patents,
copyrights, and trademarks.
Structural capital is non-physical,
so it can be hard to assess.
Watson Wyatt
index
A survey conducted
every two years in
public companies
to assess the value
of human capital
and HR practices.
Difficulty
“The only irreplaceable
capital an organization
possesses is
the knowledge
and ability of
its people.”
Andrew Carnegie
I
N
N
O
V
A
T
I
O
N
O
R
G
A
N
I
Z
A
T
I
O
N
A
L
R
O
U
T
I
N
E
S
I
N
T
E
R
N
A
L
L
I
N
K
S
Intellectual capital
monitor
Matrix that measures
the past effects,
present power, and
future potential of the
intellectual capital in
a company.
FIVA
The framework of
intangible valuation
areas (FIVA) allows a
business to identify
and link performance
measurements and
indicators to its
intangible value drivers.
Knowledge capital
scorecard
Method developed
by New York University
professor Baruch Lev
to rate a company’s
intellectual capital and
assess its contribution
to a company’s success.
Various different methods have been
developed to quantify and measure a
company’s intellectual capital.
8am
9am
10am
US_244-245_Intellectual_Capital.indd 245 09/11/2016 11:02
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