Metric Return on Marketing Investment (ROMI)
1) A marketer is evaluating two marketing campaigns. It is estimated that Campaign
1 would generate incremental revenues of $250,000, at an incremental cost of
$50,000 and a contribution margin of 30%. Campaign 2 would generate
incremental revenues of $50,000, at an incremental cost of $20,000 and a
contribution margin of 50%. If the marketer is basing their decision solely on
ROMI, which campaign should they go ahead with?
ROMI for Campaign 1 is found by:
ROMI Campaign1 (Incremental Revenue * Contribution Margin – Cost) / Cost
= ($250,000 * 30% $50,000) / $50,000
ROMI Campaign2 (Incremental Revenue * Contribution Margin – Cost) / Cost
= ($50,000 * 50% $20,000) / $20,000
Therefore the marketer should select Campaign 1.
2) A clothing retailer is considering investing in a newspaper advertising campaign
to generate more sales. The campaign is expected to cost $3,000 in creative
agency fees and $9,000 in circulation costs, while increasing revenues from
$110,000 to $170,000. The retailer’s contribution margin averages 25%. What
would be the return on the marketing investment of the newspaper campaign?
Incremental Revenue = $170,000 $110,000 = $60,000
Marketing Costs = $3,000 + $9,000 = $12,000
ROMI = (Incremental Revenue * Contribution Margin – Cost) / Cost
= ($60,000 * 25% $12,000) / $12,000
3) An alternative option for the clothing retailer (in the previous question) is to
invest in a direct mail