In this tough business environment, many small businesses are cutting back on their marketing investment. This is not an easy decision because the goal of marketing is to increase sales. To be able to make the best decision on how much to spend on your marketing strategy, you must be able to measure the value generated for each dollar spent on marketing, or in other words, measure the Return on Marketing Investment (R.O.M.I.).

There are two ways to measure R.O.M.I. The first is the straight forward, short-term and direct method. Divide the profits generated by the marketing plan by the dollars spent on the marketing plan. This assumes that you are able to identify and link the sales to the marketing plan. For example, if a coupon is circulated, the redemption of each coupon can be credited to that marketing tactic. Then, you can calculate the profit from those transactions and divide it by the cost of running the coupon. But what if you can’t identify the source of a sale? Or, what if the goal of the marketing investment was to build brand recognition? This leads us to the second, less straight forward, long-term method of calculating R.O.M.I.

The long-term way to calculate R.O.M.I. requires you evaluate the sales situation more holistically. By looking at the overall value to the business that the marketing effort contributed, you can calculate a measurable ratio that includes non-monetary values. Following are a few examples;

· Increased Brand Awareness and Purchase Intent – In order to estimate the value of building your brand, you need to track measures such as recall, likeability, and awareness. These measures are indicators of purchase intent. Improving these measures will increase purchase intent. A simple survey, or customer response tool, can track these measures. By calculating a correlation with purchase intent, you can assign a dollar value to improving each measure and weigh it against the investment.

· Lead Generation or Shortened Sales Cycle – If you consider the time and effort to make a sale in your business model, a marketing program can be valued by the amount of time saved in making that sale. The value of time can be estimated in a number of ways. One way might be the hourly rate of a salesperson. If an effective marketing program cuts the time it takes to make a sale, the profit margin is increased and the R.O.M.I. increases.

· Cost per Lead or Profit per Sale – What does it cost your business to make a sale? How much time and effort does it take to create a lead? One way to measure this it to divide the number of sales by the total cost of sales and marketing. Once this is calculated, you can decide if the investment effort improved or worsened your current efforts.

Be careful when calculating R.O.M.I. to include the entire value realized from the investment. It is difficult to put a value on the word of mouth benefit you get when your advertising generates discussion. Or it may be difficult to put a value on brand recognition or purchase intent. But if these key performance indicators to sales are ignored, you may be under-valuing your marketing investment.

By: Todd Dittman

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