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ROI Is Often the Wrong Metric

To my comments today at the Adobe Marketing Symposium, ROI is a useful metric for incremental and one-off investments.

But as digital becomes ingrained in the fabric of our channels, we need business cases that better reflect the place digital has as an element of the P&L. In this respect, return on marginal investment (ROMI) might be a better starting point. Here is a good summary, in the context of marketing:

And it’s also critical to know that maximum ROI does not necessarily produce maximum profit. Oops!  Blame the Law of Diminishing Returns. Many marketers might think that the highest ROI corresponds to the best spending level. Unfortunately, that’s not so. For example, should you stop spending when ROI drops, even if you continue to produce bigger profits? Most likely not. The point at which you’d stop or make a change depends on the return of the last incremental amount spent, not the overall ROI.

This is also what’s known as “return on marginal investment” – or ROMI.  And “marginal” return vs. an average is what makes all the difference for accurately interpreting results and making decisions on future spending. So if you must use a return measure to gauge marketing effectiveness, use ROMI.

Trading off digital investments against investments in other channels is also limiting. Digital needs to permeate every channel and customer touch-point.

Same is true of marketing, making this read even more important. Marketshare, of which Dominique Hanssens is a founder, is rewriting the marketing playbooks by focus on this crucial issue. Here he is chatting about the issues – I like his comments on touchpoints:

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