Notes

Marketing Analytics – What is MROI

Marketing Analytics is a rising topic in data analysis, especially in Canada. I’m learning it through Coursera and I will take notes and share what I got with you from now on 🙂

What is MROI?

MROI – marketing return on investment. It is the profit related to marketing divided by the value of marketing investment. The equation:

MROI = (IS * MCM – MI)/ MI

Source: Cutting Edge – Marketing Analytics, Chapter 1, R Venkatesan

  • IS: Incremental Sales, the gaining of the sales at the same period of marketing investment is put
  • MCM: Marketing Contribution Margin, the percentage of the contribution sales related to marketing
  • MI: Marketing Investment, the costs of marketing activities

Different from the FROI (Financial Return on Investment), MROI usually shows an S curve but not linear curve.

Source: Cutting Edge – Marketing Analytics, Chapter 1, R Venkatesan

From the S Curve, we can find that, at very beginning, the investment on marketing results in very slow increase of the sales. While at the middle part, the incremental sales becomes obvious. And beyond one point, the sales returns to flat.

Why this happens? It is because of the following marketing challenges:

  1. The marketing activities may not be in effect at the current period. For example, a potential client saw a TV ad last month, but he decided to buy the product this month. There is a delay between the marketing interaction points sometimes.
  2. The marketing contribution margin is difficult to calculate. In other word, marketers don’t know how much incremental profit is related to marketing most of the time.
  3. It is unsure If you double the marketing investment, you will get the incremental sales doubled or not.
  4. Not all the marketing measurement has a fix mathematic equation. We have to use regression analysis with the historical data to identify the relationship between some of them.

Conclusion: MROI is an important metic for marketer to better allocate the marketing resources. It is not that straightforward due to the challenges.  If we want to optimize the marketing decisions through MROI, we have to understand all of it.

Here’s an quick example of how to calculate MROI:

Company A hired a new sales rep with annual pay $50,000. The following year got an incremental sales of $150,000. And the marketing contribution margin is 50%. What is the MROI?

MROI = (IS*MCM – MI)/MI
=($150,000*50%-$50,000)/$50,000
=($75,000-$50,000)/$50,000
=$25,000/$50,000
=50%

Source: Cutting Edge – Marketing Analytics, Chapter 1, R Venkatesan

Screen Shot 2017-01-24 at 3.48.08 PM.png

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