Return on Marketing Investment: Green Initiatives

In order to evaluate the success of any Integrated Marketing Campaign the marketer must calculate the Return on Marketing Investment (ROMI). The ROMI informs the marketer as to which IMC activities (advertising, social media, key words, etc.) generate the greatest return (sales). This important metric guides future resource allocation decisions.

To calculate ROMI you will need to use the following formula:

Gross Margin Marketing Expenditure

ROMI = ----------------------------------------------------------------- 100

Marketing Expenditure

In the following exercise, youll evaluate the current IMC media buys to promote a product or service and evaluate where future resources should be directed.

Carefully read the scenario below and then answer the questions that follow. You will need to identify the various IMC elements (advertising, social media, promotions, etc.), the cost of each element, and then the sales generated by each element.

Questions 1-9 focus on three key data elements needed to calculate ROMI for each media:

1) Marketing Expenditure the cost to purchase each IMC element

2) Sales Generated by IMC Element

3) Gross Margin measured as sales (check the case for specific number)

Be prepared to make recommendations for future media buys. Refer back again to the definition of, and formula for calculating, ROMI.

Carmen Vinh was recently hired as Marketing Communications Director for Green Initiatives, a solar energy firm. Her primary responsibility is to plan and execute the Integrated Marketing Communications Campaign designed to persuade homeowners to convert to solar energy. Since Green Initiatives had no prior Marketing Communications Director, the various marketing communications initiatives and media buys were not well coordinated. Carmen was curious as to which of the various existing initiatives and media buys were actually working. She decided to focus on the media buys and began by collecting cost data for each media and examining sales that could be attributed to each media.

In order to make the comparison equal, Carmen decided to use the data from the previous quarter. Carmen learned that the firm had purchased television ads on local channels, radio ads on talk radio and sports radio, social media focused on Facebook and Twitter, and invested in a direct marketing mail campaign. In total the firm had spent $820,000 and generated sales of $2,625,000.

Now that Carmen knows her total expenditures and total sales generated, she can calculate the Return on Marketing Investment. The chart below shows the data she collected for each media:

Media	Cost last quarter	Sales last quarter	Gross Margin
Television	$450,000	$1,200,000	$600,000
Radio	$250,000	$875,000	$437,500
Social Media	$75,000	$300,000	$150,000
Direct Mail	$45,000	$250,000	$125,000

1. What is the ROMI for television?

2. What is the ROMI for radio?

3. What is the ROMI for social media?

4. What is the ROMI for direct mail?

5. Based on ROMI, in which media should Susan invest the most resources?

6. Based on ROMI, which media is the least productive?

7. Based on ROMI, which two media will provide the highest return?

8. If Susan invests $420,000 in social media in the next quarter, what should ROMI be for that investment? Consider the calculations of the past quarters ROMI in your calculation.

9. Examine again the two types of media that provide the highest ROMI. What characteristic do these two media have in common?