Now I’m not some sort of fancy professional quote maker, but I do appreciate accuracy in my industry jargon. This is probably more “old man yells at cloud” than I’m willing to admit, but I think that we need to expand the marketing sayings lexicon when it comes to talking about business outcomes versus marketing expenditure.
Right now, I hear 2 terms thrown around a lot when people are trying to measure the effectiveness of their marketing program.
ROAS (Return on Ad Spend)
ROI (Return on Investment)
Neither of these are perfect terms, and are often used as stand ins for a term that I want to deem ROMS (Return on Marketing Spend)
ROAS is useful in a certain context. I spend $500 on ads and get $1500 back. That’s a 3x ROAS as the revenue was 3 times what I spent. Simple and useful, but utterly lacking from a high level KPI perspective. Marketing is so much more than just ad spend. Labor, tools, brand building, etc. This isn’t even to mention all of the types of marketing that have no ad spend associated with them. Organic social, content marketing, SEO, etc. ROAS is clearly useful, but lacking at a high level.
ROI is really an investors term in my mind, and not a particularly useful one for marketing. ROI, to me, is basically short hand for what’s the profit on this activity. However, there’s so much more than marketing being included in that definition. What if there were sales people involved, what if a marketing activity was a perception exercise, or brand building, or built around increasing customer loyalty? How do you measure that? Let’s set aside for a second that analytics and reports aren’t nearly a accurate as we all believe they are. ROI is clearly a much broader term than is useful for a marketing department to be able to reasonably control or be concerned with.
ROMS on the other hand is inclusive of labor, and ad spend, and tools, and brand building etc. It takes into account the total amount of money spent in every facet of marketing, and then contrasts it with the revenue over the long term that marketing has brought in. To that end I would suggest that ROMS be measured on the basis of 1 month, 1 quarter, and 1 year to get an accurate idea of the direction that you’re heading in. While I’m not claiming ROMS is a perfect metric, I think that it can help better frame the conversation around the questions that executives are actually trying to get answered.