ROI, ROMI, ROAS – what do the metrics mean?

ROAS (return on ad spend) – profitability of advertising expenses. The metric shows whether the money you invested in advertising is returning. ROMI metrics mean evaluates the profitability of investments in marketing and other measures aimed at increasing sales.

The ROMI metric is similar to ROI. What is their difference?

In direct sales with a short metrics mean decision-making period;
loyalty programs;
work with clients, elimination of complaints.
That is, where the result can be seen immediately.

The metric reflects the profitability or unprofitability of your business, taking into account the investments you make in it:

ROI<100% – investments did not pay off, funds were spent more than received;
ROI=100% – worked at 0, spent metrics mean funds paid off, but did not bring profit;
ROI>100% – the invested funds gave an increase in profit.

The main method of calculating ROI:

ROI return on investment

There are other formulas that calculate ROI:

ROI = Profit / Cost x 100%

ROI = (Revenue x Margin) / Expenses x 100%

where Margin is the difference between the price and cost of the product.

Or you can calculate ROI through gross profit, it doesn’t take into account all other office expenses etc.:

 

At the same time, the cost price

When calculating the ROI indicator, all expenses are taken into account: for renting premises, salaries of employees, etc. If you do not have such data, but there is information. About marketing expenses, then we are talking about the ROMI indicator.

The ROI metric shows what needs to change in the business. Then, when calculating the ROI, the period of time without global changes in the company is taken into account, then the figure will be more accurate. But there is no point in focusing only on ROI. Many factors affect business profitability.

In marketing, the ROI indicator is applied to advertising campaigns . And here you need to see which campaign brings great profitability and sales volume. Therefore, first optimize the campaigns and only then see the ROI.

Disadvantages of ROI :

ROI is calculated on a certain date with reference to a time period. While the exchange rate and other data are variable;
uninformative – ROI does not take into account all features of projects and campaigns. That is, the indicator will reflect only part of the situation.
How to increase ROI : Increase income or decrease costs.

Increase income

the ad should be visually similar to the landing page;
the ad must lead to the correct page, not the Main page (the ad contains the user’s query and leads him to the landing page that corresponds to what he is looking for);
test options for creatives and ad texts;
use several advertising channels;
implement pre- and cross-selling (offer related products in the Similar block on landing pages or come up with an offer with up-selling).
Reduce costs

turn off channels that work in the negative;

test the budget.
Now let’s calculate the return on marketing investment, ROMI.

2. ROMI – return on investment in marketing
ROMI (return on marketing investment) calculates the effectiveness (return) of marketing investments only. ROI is usually understood under ROMI.

ROMI calculation is more suitable for businesses where the time to make a purchase decision is short. That is, not for real estate, cars, large equipment, etc.

The calculation formula looks similar to ROI, only not all business expenses are taken into account, but separately marketing expenses (contextual advertising, SEO promotion, SMM, email, blogging expenses, etc.).
This metric does not include rent of premises and salaries of employees.

ROMI return on marketing investment

 

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The marketing budget is the cost of campaigns and the salary of those employees who worked on the launch.

ROMI=100 – no income, we earned as much as we invested.
ROMI<100 – advertising investments do not pay off, we work at a loss.
ROMI>100 – we work in the plus.

So the campaign is set up and working effectively.

 

What helps to know ROAS :

advertising profitability;
which specific campaigns/ad groups/ads are effective;
how to redistribute the advertising budget.
But keep in mind that ROAS ignores ad attribution. That is, it does not take into account the visitor’s path from the moment of viewing the ad to the purchase.

Now you need to compare this metric against campaigns and ads. The comparison will make it clear which of them work better:

ROAS<100% – everything is bad, the campaign is unprofitable;

ROAS=100% – you left at 0;
ROAS>100% – everything is ok, the  metrics mean campaign is successful.
To calculate ROAS, you need to know the amoun t you behavioral sciences for organizational change spent on advertising and the total conversion value (this is the money you received from customers who came from advertising).

Example:

Business – launch of a new stream of copywriting courses

 

So, your advertising costs for 10 days of the aleart news campaign paid off by 333%. At the same time, every dollar spent brought.