What is Marketing ROI?
Marketing Return On Investment (MROI), sometimes referred to as return on marketing investment (ROMI), is the percentage of profit gained by investing in marketing. Marketing ROI shows the viability of marketing and how marketing contributes to a company’s bottom line.
How to calculate Marketing ROI:
[ ($)Gross profit
($) Marketing Investment ]
($) Marketing Investment
(%) Marketing ROI
The basic calculation for ROI is (Profit - Investment) / Investment. This formula can be applied to marketing in a couple different ways. The most common, high-level metric is to subtract your average monthly or annual marketing investment from your average monthly or annual gross profit, then divide it by the marketing investment. Since marketing ROI is usually displayed as a percentage, you’ll want to multiply the result by 100.
Alternatively, you could calculate MROI for a specific campaign or replace gross profit with customer lifetime value (LTV). The latter would look like this: (LTV - Marketing Investment) / Marketing Investment = Marketing ROI.
For a more precise MROI, you might want to use net profit instead of gross profit.
Marketing ROI is one of the most important metrics for a marketer to calculate since it proves the effectiveness of the marketing spend. It’s often challenging to demonstrate how each marketing campaign impacts the company’s overall growth and profit, but by calculating the marketing ROI you’ll have a concrete number to take to the CEO.
MROI can be used to calculate the overall profitability of your marketing efforts, a single channel or campaign, or even the ROI of media spend (paid advertising).
As with many metrics, MROI can be artificially inflated if you pick and choose which campaigns or channels you report. If you want the ROI for a specific channel, that’s great - but be sure to present your MROI in context. For example, if you’re preparing for a board meeting, you’ll probably want to present your overall marketing ROI (calculated with monthly or annual gross profit and monthly or annual marketing investment), not a specific channel or individual campaign.
Also, remember that the overall goal is to maximize profit, not necessarily marketing ROI. Maximizing profit and long-term value often goes beyond obtaining the highest MROI possible. As always, keep the overall company goal in mind as you monitor and improve MROI to ensure all your efforts align with the business objectives.
Relevant Marketing Metrics and KPIs:
If you’re adding Marketing ROI to your marketing dashboard, you might want to also consider tracking these related marketing metrics for context.
Since MROI varies significantly by channel and business model and can be calculated based on a single campaign or at a company level, it’s too broad to provide a one-size-fits-all benchmark. However, your MROI should always be positive - if it’s negative, you’re in big trouble.
It might be helpful to set internal benchmarks based on past campaigns or time periods (last quarter or year).
Marketing ROI can easily be confused with LTV:CAC ratio and cost per acquisition (CPA). Here’s a quick reference on the differences.
- MROI focuses on marketing efforts and can be calculated on a broad scale or on a specific channel or campaign.
- LTV:CAC Ratio focuses on company-wide growth and includes sales contribution.
- Cost Per Acquisition (CPA) is specific to online media spend. It calculates the cost of acquiring a customer via paid marketing (social, search, etc.). CPA is a direct marketing / response metric.