How to Use ROI to Your Advantage
Return on investment is a crucial part of any investor’s strategy, but this isn’t just about playing the financial markets. As a business owner, you invest in your business. You put your money into your venture in the hope that it will return a profit, which is just like the stock market. What’s more, everything about your business has return potential, and this is why you need to use ROI – return on investment – to your advantage.
Everything in your business costs money. There are no freebies. When you take into account what it takes to get your money’s worth out of something, you see how much you have invested. Intuit, makers of QuickBooks software, explains that all businesses should calculate their ROI on everything. This is the only way you can see if something is earning a profit or costing you money. Granted some things, like equipment, will depreciate over time, but you still want to get the most return possible.
Intuit suggests you take into account all costs of a business investment. How much will a piece of equipment, an employee, or a marketing strategy, for example, cost you? What will you get in return? Don’t forget to include any time in the investment. In other words, how much of your time will it take to hire that employee and what will your time cost? Also, calculate revenue, expenses, benefits, and projected expenses and benefits in the future. You want to see all costs associated.
Tools to Help
To attain this breakdown, you can consult with financial experts or use tools. Assume for a moment that you want to hire a new information technology manager. Will it be more cost-effective to your company to hire an employee and pay salary, benefits, and employment taxes, or should you hire an independent contractor? Which will give you a better return on your investment? A cost per employee in technology calculator can help you crunch the numbers to see the best option for your current financial situation.
What about your marketing strategies? Is it cost-effective to run an SEO campaign complete with paid online advertising? In this case, you can do plenty of marketing and demographic research prior, and you should, but you won’t know if the campaign pays off until you launch it. Online advertising and SEO platforms offer analytics that allow you to track your marketing campaigns to see what they’re doing. If the campaign generates clicks to your website and sales, you might be getting your money’s worth.
Might be? It’s still important to calculate your ROI. You must take account for the costs of the campaign and then see if the profits resulting from it more than offset them. If they do, continue with the campaign until it becomes ineffective. If they don’t, it’s time to test it and come up with a better strategy. It does you no good to invest $25,000 into a comprehensive digital marketing campaign only to earn $30,000 in profits. This isn’t a high enough ROI percentage to justify the operating expense.
Return on investment is important to any business. From equipment to employees, if what you put into something doesn’t pay off, you’re losing money. Make certain to calculate ROI.