If you think return on investment, or ROI as it’s commonly called, is only for investors, think again. Yes, the best investors take into account the projected and official returns on any financial vehicle before they put their money into it, but businesses use ROI, as well, and they should. Your business is an investment, and if you don’t get enough returns from your initial efforts, you’ll find yourself in hot financial water. This is why ROI is important to any business, large or small.
You Spend Money on Your Business
According to financial software giant Intuit, tracking a return on an investment helps businesses see how profitable an expenditure was in the end. If the expenditure did not perform as anticipated, a business owner can rethink the cost. If it performed as or better than expected the business owner can increase the money going into the expenditure even more. This goes beyond the intuition of a successful entrepreneur. It shows all in the know that the investment did or did not pay off.
For example, imagine your marketing team comes up with a fantastic new digital marketing campaign. They’ve done their research and the SEO and online advertising is certain to pay off. You agree and approve an initial investment of $10,000 in operating capital into the new campaign. Your marketing team collects the analytics to show how the campaign is doing. The reports show the online ads generated clickthrough traffic resulting in $25,000 in sales the first month. Success!
If your marketing team didn’t analyze the data to show the campaign investment generated profits, you wouldn’t see the return on your investment, but ROI isn’t just for digital marketing campaigns. ROI is also used for traditional marketing strategies, sales strategies, internal and external investment strategies, and personnel. Are you getting a return a on your investment from your employees, or should you outsource certain tasks to independent contractors to save your precious cash flow?
Although controversial, many businesses have discovered outsourcing jobs is the most cost-effective way to run a portion of their entity. Whether it is customer service or information technology, crunching the numbers to see how much money you might save on certain in-house positions might prove fruitful to your business. You can use a sourcing ROI calculator to help you with this task, and then make any tough decision you might have to make. Hopefully, you can save money and keep your existing staff.
Aside from using the calculator, take into account the costs of any job or other investments, including all the time spent. Also, notate how much revenue a job or investment will earn your business. Are there intangible costs and benefits, and what about any current costs of an existing or similar job or task? Are you making or losing money on it? Project the numbers two to three years, and then listen to your brain and heart. Do you think the job or investment will benefit your business?
If you decide to move forward, engage metrics to help you track the income and expenditures so you can determine whether you’re getting your money’s worth. Is there a return on your investment? If so, how much? If not, move on.