Why You Need to Spend More Time on ROI
Jul 29th - 2min.
ROI, or Return On Investment, a complicated but indispensable term. When you run a company, it’s important to know what’s happening with your money. Discover what ROI means, why it’s that important and what the ultimate formula is.
When you don’t feel like throwing money down the drain
ROI, or Return On Investment, a complicated but indispensable term. When you run a company, it’s important to know what’s happening with your money. You don’t want to throw money down the drain, right? Discover what ROI means, why it’s that important and what the ultimate formula is.
What is ROI?
Return On Investment is explained as the ratio between investment and revenue. This ratio is displayed as a percentage. Under the term “investment”, we mean all the costs a company spends on a certain activity. This is often calculated easily for example; the billable hours of an employee.
But the “return” is exactly where the problem lies. What you get in return for your investment, isn’t always measurable. With offline campaigns such as advertising in papers or a poster on the wall of the bus stop, you often have no clue what the return exactly is. Did people notice it? Did you reach your target audience? Which impression did they have of your company? These are all elements that cannot be measured directly.
Online campaigns are easier. You can measure the number of visits on a website, likes and comments on a social media post or the amount of registrations for a newsletter.
Why is it important?
Calculating your ROI is important to know what your activities bring to the table. Be honest, are you going to pay for an advertisement that isn’t profitable? We’re not going to. Businesses will forever be a balance between cost and revenue. You want to earn as much as you can while spending as little as possible.
The ultimate formula
The formula for ROI is:
(current value of investment - cost of investment)
------------------------------------------------------ * 100
cost of investment
If you really want to do it right, follow the following steps:
- Set goals. After spending the money, you have to evaluate if the investment was profitable. An example of a goal is to generate X% more hot leads.
- Choose the right KPIs or Key Performance Indicators. These are variables and standards to analyse the performance of your organization.
Depending on your goal, you measure other KPIs. With these indicators you will be able to calculate the investment of your action. For example: if your ultimate goal is to generate more leads, you set up KPIs so it’s possible to measure whether you are actually reaching your goal or not. Possible variables include the number of conversions or registrations for a webinar.
- Develop a strategy that fits within the general marketing strategy.
- Draw up a report with a summary of the different KPIs.
A bonus tip, just for you
Measure your online campaigns with tools such as Google Analytics. It tracks your data and researches the traffic that ends up on your website. What did the visitor think about the site? Which channels (Instagram/Facebook/Twitter) did he/she go through? Or did he/she typed in a certain keyword? These are all factors that are worth keeping track of. Thank god for analytics!
In snack format
- ROI = Return On Investment, the ratio between investments and revenues.
- Indispensable to know if you want your campaigns to be efficient and profitable.
- Set your goals, choose the fitting KPI’s, develop a strategy and draw up a report.
- Use Google Analytics to track the traffic of your website.