The basic formula for calculating return on marketing investment (ROMI) is:

[[sales-costs]/marketing costs]

Where:

• Sales is the revenue generated from marketing activity recorded as sales to customers
• Costs are the costs of generating those sales (cost of goods sold or COGS) and the costs of marketing.

Some notes:

How carefully you define sales and costs can be important in determining your true ROMI. Below I am going to show you how your reported ROMI can vary from between 5 and 1 – depending on which numbers you include in the calculation.

Let’s do this by looking at three ROMI scenarios:

1. [Total sales / marketing campaign costs]: This is the simplest way to calculate ROMI. You add up all the sales made in a period, say Q1, and divide that sales revenue by your marketing spend in the corresponding Q1 period. So let’s say you generate £500k in revenue and you have campaign costs of £100k. Your ROMI in this scenario is £500k / £100k = 5 which can also be expressed as 500%.
2. [Total sales-COGS / marketing campaign costs]: In this scenario we remove cost of goods sold (COGS) from the revenue. So let’s say you generate £500k sales but the cost of making the product sold was £250k. Now the ROI calculation becomes £250k / £100k = 2.5
3. [Total sales-COGS / total marketing costs]: In this scenario we calculate revenue as sales-COGS (as in point 2 above), but we include total marketing costs – these can be the costs of all the assets generated plus any agency fees. So let’s say your sales revenue is £250k (£500k-£250k), but your total marketing costs for the period are:
• £100k campaign costs
• £25k origination costs (e.g. photography, licensing, DM postage etc)
• £25k agency fees
• £20k freelancers for internal fulfilment artwork

So your marketing costs in Scenario 2 have increased by £70k to £170k. This means your ROMI calculation now becomes £250k / £170k. In this scenario the ROI is 1.47.