ROI CalculatorBuilding an ROI Calculator for Marketing
ROI Calculator for Marketing
In making an ROI Calculator, we know there is only one formula for computing ROI. In marketing, however, there are many ways to calculate ROI for marketing.
The most difficult challenge is the measurement of the return. The revenue and profit generated by a specific marketing investment can sometimes be hard to get and many marketing analyses can capture the investment for a specific marketing action. Marketing returns are defined as the level of incremental sales volume generated by the particular marketing investment. Returns in this case then are measured first by determining the incremental unit volume then multiplying either by the price or the contribution margin per unit.
More difficult to include in ROI calculations are the impact of a brand and the use of long-term, one-to-one marketing activities. To build an ROI calculator for brand marketing or to determine a brand ROI, estimates of incremental return can easily span more than one year. To build an ROI calculator for one-to-one marketing activity the customer lifetime value (CLV) must also be included somehow.
Most marketers simplify the use of the ROI calculation by using a ROMI index (revenue-based), mROMI calculation (margin-based) for the Marketing ROI calculation. These calculations and their derivations and linkage to each other are shown below:
ROI Calculators used in Marketing
In this formula, the ROMI index (revenue-based) is defined by dividing the incremental revenue by the marketing cost/investment generating the incremental revenue. This index is adequate only when media decisions are to be made. If pricing changes are combined with the media selection decision, then the mROMI Index would be preferred.
The mROMI Index (margin-based) is defined by multiplying the ROMI index times the contribution margin generated for the incremental revenue. Typically, this doesn’t include the fixed costs associated with the incremental volume, but the financial cont
The Marketing ROI (expressed as a percent) is simply a further calculation on the mROMI index. Typically for presentations outside of marketing, the marketer would choose to express their success using these types of numbers.
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