MARKETING RETURN ON INVESTMENT (MROI) & FINANCIAL RETURN ON INVESTMENT(FROI)

MARKETING RETURN ON INVESTMENT (MROI) & FINANCIAL RETURN ON INVESTMENT(FROI)

MARKETING RETURN ON INVESTMENT (MROI) & FINANCIAL RETURN ON INVESTMENT(FROI) are two very important tools for any manager. These tools helps in understanding and evaluating the efforts made for organisation. Both tools are critical to measure the success of investment made and can lead to effective decision making, if employed well. 

The MROI can be easily calculated in descriptive way by doing some dipstick test marketing to measure the perception and check any effect in brand loyalty. This could also be calculated through numbers as well.

MROI: MARKETING RETURN ON INVESTMENT

MROI is a way to calculate the return on marketing investment.The focus is on finding the impact of marketing activities on the organisation revenue and margin.

The MROI can be calculated with the following formula

MROI = (Incremental Margin because of additional marketing investment-Marketing Investment})/Marketing Investment

Incremental Margin is the difference of margin occurred because of additional Marketing Activities while Marketing investment is the amount we have spent on marketing efforts.

For example, The company XYZ makes a revenue of Rs. 1 lakh with a 10% margin of Rs. 10000. To increase the margin and revenue the company decide to run an online campaign with a budget of Rs. 10000. With the online campaign the sale is increased to Rs 2.50 lakhs with an increased margin amount of Rs.25000.

The MROI is = (25000-10000)/10000 =1.5 = 150%

MROI is important and necessary to measure the impact of marketing efforts made. But the important part is to identify the incremental margin which can be result of various other activities. MROI helps in followings:

• Measuring the impact of marketing activities
• Helping in taking corrective marketing actions
• Predicting the impact of marketing activities in future

FROI: FINANCIAL RETURN ON INVESTMENT

The FROI is ratio of margin to the investment made. FROI takes an holistic view of investment, an organisation makes to increase the revenue. It could be in manufacturing, Human resource training or R&D activities. This helps in understanding the return on investment and then decide whether the investment decision was right or wrong.

FROI = (Gain from Investment- Cost of Investment)/Cost of Investment)

FROI helps in evaluating the impact of any particular investment made. This defines whether the investment was useful or not.

Both MROI and FROI are important tools in their categories, whereas the MROI focus specifically on Marketing campaigns/activities, FROI is meant for any of the organisational activities. The tools helps in corrective decision making.