What is ROI?
ROI can be reflected in any expense a company may have. Some expenses do not reflect direct return on investment, for example buying staples, stationary, or creating a room for recreational activities, the spent costs add up to the total expenditure, impacting the figure of total investment. Some expenses, however, may give you quicker results in terms of return. For example, bringing a graphic designer in your team for ads and other design collateral, hiring a photographer to lead a marketing campaign, or redesigning your company’s website, are a few things you might do to get a direct return on investment.
ROI is mostly used to calculate the value of an investment or what an investment will bring in profits in the future. ROI stands for “return on investment”, which means the percentage or amount of money you will get in return upon investing a certain amount in a specific business or project. Getting a thorough forecast on the return on investment is necessary For instance, an angel investor would be interested in the potential ROI of an investment before he could commit funds to a proposal of a company or a project. To calculate a company’s ROI, the annual income or profit is divided by the investment amount.
ROI can also be understood as an opportunity cost, or what an investor gives up by choosing to invest in option A over option B. Let’s say option B was investing in the stock market, the return on investment from this option would now be an opportunity cost to invest in option A. The investor would now expect to receive an annual return from option A, more than what he would’ve received by investing in option B.
Teams and project managers use ROI to measure the success of a project in which funds are injected. If a business owner invests in an advertising campaign, he analyzes the sales generated by the ad and determines the ROI. If the money generated exceeds the amount spent, then a business could consider it an acceptable ROI.
Why Is ROI Important in Business?
ROI is not just important but is critical to maintaining a business’s stability. Businesses that plan and spend wisely while continuously monitoring the ROI closely have more chances to survive in the long run.
If there isn’t an optimal ROI on a project that requires spending, it is better to stop throwing money at it. Spending on lost causes is only going to make you run out of money, resulting in the lack of cash to maintain a healthy flow of business operations.
With ROI, you can see the potential fruits of your investment. It also reflects the alarming signals that would want you not to invest. It is critical for businesses to always have a properly calculated projection report, so the chances of the investment paying off are high.
Business Strategies to Focus for Increased ROI
ROI is interesting and challenging at the same time. Interesting, because it can be the most useful information from a business success point of view. Challenging, because it is based on multiple factors, only a projection before you spend the money and witness the results. ROI is a very simple-to-understand indicator for decision making and the simplicity of the formula makes it easy to choose variables to calculate any kind of cost components. Here are a few strategies businesses must focus on to increase their current return on investment. These are broad strategies, and to make them work for a business, these have to be aligned among the top executives, managers, and their teams. Let’s take a look at what these strategies are.
Identify Investments with Potential Benefits
As a manager who wants to make a decision about an investment, you would want to earn returns with good margins. However, you cannot always succeed in that. Most investors miss this important thing: to recognize the potential investments with higher return policies. To get higher returns, knowing about potential investments that have promising returns is necessary. Also, the company must be aware of the medium of returns that are most beneficial to boost the company’s growth.
Some examples are investing in employees’ professional development, packaging, marketing and branding, profits from sales, and the brand’s improved operational methods. Once you have identified the potential returns, choosing the methodology and reaching the set target becomes easier.
Invest in Things that Stay Permanently
Investing in your company’s permanent assets is probably the best investment you would ever make. Since these assets will remain with the company, work the rest of the ingredients right, and these assets will pay off. Companies usually confuse short-term benefits with smart investments. They invest in things that bring sales for the short-term and fade away after a while. This is not a smart investment, this is short-sightedness. A business’s most favorable assets are its employees. Investing in training employees would develop their skill sets and get them motivated to perform better. Like investments in training, seminars, or a conference will teach your employees or your managers some fundamentals about the growth of returns and benefit your firm in the longer run.
Investing in educating or enhancing the employees’ skills will develop their caliber and always turn out to deliver good results. Businesses must try and find a correct balance in short-term and long-term investments to maintain their sail on the surface.
Reduce Cost and Increase Revenue
These are two extremes that need to be worked upon. Companies keep working on strategies to increase revenue. It is an on-going hustle. They are also continuously looking to decrease the costs. The smart way to work for profitable returns is to work in both directions simultaneously. To open the door to extensively solid returns on your investments, the business strategy would have to include cutting the costs wherever possible and constantly grinding to increase the sales.
Now, it is difficult to achieve increased sales and revenue without having the costs go up, but once it starts working, the positive returns would help flourish the business without affecting the costing sheets of the company. Suppose after implementing all the possible ideas to increase the revenue, nothing works out as expected. Reducing cost will seemingly work in this situation. If your returns are not satiating your company’s needs, pulling the strings by cutting costs in areas like production and manufacturing might have a direct impact on costs, impacting the total ROI. Play smartly, and you can optimize your costs to get an increased revenue-to-cost ratio.
Be Aware of the Risk of Your Investment
There can be thorough research of the market and analysis of various investment initiatives, and even data from companies who have invested in the projects you aim to invest in and still experience a downfall in terms of less or no profit. Investors can hire a team of qualified analysts to project the success ratio of an investment initiative and identify investment opportunities with higher chances to pay off but still face loss. This happens due to varying factors, including the volatility of the market. This doesn’t mean it is worthless to follow predictions and data-based patterns. More often than not, these analyses can reflect patterns offering higher chances of success, and so might pay off better.
What matters is, an informed decision is much better than a vague one. Getting beaten after proper research could be bad luck, but it doesn’t happen quite often. Making correct decisions is very important when it comes to investing money.
Invest in Your Workforce
The workforce is the backbone of any business. It is that one key ingredient that can make your business recipe one of the most successful ones. By investing in your workforce, you’re developing skills for them to use while they’re on the job. It also makes them realize that the company cares about their development and their professional growth. This belief makes employees stay more motivated and productive at work.
This way, you can get your employees to work more efficiently since now you have a much more skilled and motivated workforce. Working more efficiently means employees are better able to utilize the resources, get the work done, and hence bring in more conversions. All this can happen by following optimized and cost-efficient methods and processes.
Areas to Focus to Increase ROI
We talked about mapping a well-framed, holistic strategy based on various business strategies that would align to pivot the ROI for the company. All of the above are broad areas under which many departments and functions would work closely and achieve the
Email Campaigns
You might have heard about retargeting the audience that recently visited your website. Today, digitally targeting these people is the number one way to increase ROI through sales and marketing. Today, when almost everyone is connected digitally, targeted email campaigns are a great way to communicate and convince the audience to engage with the brand, understand how it can help fulfill their needs, and finally buying the product or service. The digital marketing expert from iNexxus, Larissa Aslanyan says, “The more informed we are about our audience interests and demands, the more ROI we receive”.
Automation
Automation has transformed the way leads are now converted into paying customers. Automation has entered the world of sales and marketing revolutionizing the way potential clients are treated. Businesses can use automation to track traffic and downloads from social networks and later present them interesting content to ask them to share their details in return for something valuable. Automation can also be set up for acquiring and maintaining leads and communicate with them via automated emails and email marketing campaigns. Automation reduces the manual efforts of the marketing team, and fastens the process of engaging potential customers, pivoting the chances of converting more of them to give increased ROI.
Ads
Presenting your potential audience with quality ads is a well-known method to let them know about your product or service. Ads must be engaging, with clear messaging around how it solves the problems for the consumers. It is easy to understand that all the money spent to make a product or service ready to sell will be recovered by generating sales. These costs are the investment you make into a business, and quality ads would help the business communicate the features and benefits of the product or service to target customers, hence generating revenue. The better the ads, the more revenue they would generate, hence resulting in better ROI numbers.
Social Media and SEO
Having successful social media campaigns and SEO can also have a positive effect on ROI value. Digital Marketing is one of the most powerful marketing channels to ever surface. With conventional marketing channels like radio and TV, brands could show ads to mass audiences with no clear return on advertising investments. Now with digital marketing, brands have got the power to capitalize on a large range of audiences. This audience is digitally connected with all their primary details. With a well-maintained, strong social media channel and an optimized SEO strategy, businesses can target the right customers in a much lower marketing budget, and eventually get higher ROI.
Keep Track of Results
Getting to an ideal or projected ROI is not a task with specific steps or a pre-established strategy. It is lots of analyses, predictions, trial and error, optimization, and keeping track of the results. It needs a lot of testing to finally find the best method for your company to increase its ROI. You can end up with an improved ROI by using different ways to measure the success of each marketing campaign. Testing with a small budget and spending it in multiple ways, each backed by specific strategies, and creating a pattern to identify the success metrics is the way to go. Once you are sure a method is working, you can always increase the budget.
Testimonials
Testimonials from actual customers are really useful in creating case studies and showing potential clients how your product or service has provided solutions to their problems. Testimonials help businesses build trust and pull potential customers based on authenticity and the satisfying experience delivered. When customers tell their success stories and marketed to the audience via various marketing channels, the return on investment is usually high. It is because the message communicated has a much greater impact than just advertising the quality of the product. Thus, marketing testimonials will always be a source of resulting in higher ROI.
Corporate Training Partner
As mentioned above, investing in the workforce can result in achieving a higher ROI for a business. To train the workforce, businesses must hire corporate training providers. Since technology is one of the strongest tools to make use of, businesses must have a robust technology infrastructure, which can be implemented by qualified and certified IT, experts. Instead of hiring experienced and certified IT professionals, getting the current workforce trained and certified would be a far more cost-friendly solution. Another benefit is that the current workforce already knows the on-going business processes and would save the time and cost spent to train newly hired employees. All these factors are going to result in an optimized cost structure and a higher ROI.