The ultimate measure of marketing effectiveness is financial payback and businesses invest in marketing purely to make a profit.
Recent research
Yet recent research suggests that less than 20 per cent of marketing activity is evaluated in this way, and when payback is assessed calculations are often flawed. A best practice guide from the Institute of Practitioners in Advertising and the Incorporated Society of British Advertisers aims to remedy this, offering practical tips on how to measure marketing's effects and how to calculate the contribution to shareholder value. Authored by agency supremo Les Binet and endorsed by VW's Managing Director Robin Woolcock, as well as CIMA (Chartered Institute of Management Accountants), the guide tells you what to focus on and what to avoid, and explains the differences between the metrics of ROMI, ROI and straight payback.Top tips when calculating payback include:
- Revenue is not the same as profit - a campaign that costs £1m but generates £10m worth of sales has not paid for itself ten times over.
- Make sure the correct profit margin is used.
- The term ROMI (Return On Marketing Investment) should always be used when calculating the return from marketing to avoid confusion with other ROI measures.
- Don't call non-financial measures ROI/ROMI. It is commonplace to hear marketing people using these, but ROI or ROMI should only be used to describe the ratio of profit generated to the amount invested.
- Aim for profit, not ROMI. Net profit generated is a measure of marketing effectiveness and is the ultimate KPI for marketing personnel. ROMI is a measure of marketing efficiency and should only be of secondary importance.
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