When it comes to running a business, few things concern owners more than achieving a successful return on their investment (ROI). It’s not an issue that disappears after you’ve officially reached a profitable term or a well-developed client and customer base. In fact, it’s a concern that will dictate your business decisions for the duration of your operations.
Whether you’re an established entity with decades of experience or just starting out and toying with the idea of a new business, you’ll be focused on generating ROI. Why? It’s more than simply earning back the basic start-up costs. As you will continually invest in your business, you’ll be continually focused on the ROI of those investments.
What Is ROI?
In order to understand how to maximize your ROI, you must first understand what it is. Most business owners are already familiar with the definition, but a refresher never hurts.
In layman’s terms, your ROI is quite simply, the probability of recouping the costs of your investment, and the potential profitability ratio. According to Business News Daily, “ROI is used to calculate how much of a value an investment is.”
There is a basic formula that is used to determine the ROI of any individual project or business investment. In short, your ROI is calculated by dividing your net profit by the overall cost:
ROI = Net Profit (Profits – Investment) / Cost (Investments, Maintenance)
It goes without saying then, that in order to increase your ROI, you need to increase your net profits – which, let’s be honest, is the whole purpose anyway. The higher your net profits, the higher your ROI and the greater your investment is worth. So how do you go about boosting profitability?
Well, for starters, you need to fully understand the overall costs of any particular venture. Whether it’s advertising, investing in a new product or service, or developing new merchandise lines, using the ROI formula will be your first step in understanding the likelihood of a successful endeavor.
“Understanding the return on investment of any project or marketing campaign helps in identifying what is a successful business practice versus what isn’t.” – BusinessNewsDaily.com.
Tips to Increase Your ROI
Once you are confident you’ve got a successful concept for investment, the next step is to optimize your profitability in order to increase your ROI. Determining what factors will positively impact your ROI isn’t a cut and dry process, as every investment venture has its own unique set of influences. However, there are tips to help increase the ROI of many ventures as a whole:
It may seem like a given, but electronic communication is a highly efficient method of increasing the ROI of any given investment. Why? Because it cuts the cost of generating hard copy mailers and takes a significantly lower amount of time to complete. It also gives the invaluable insight of digital analytics which allows you to fully grasp which markets are working best for your investment.
With marketing campaigns focused largely on digital platforms, it makes sense to track their success rates digitally as well. Online analytic programs will take the guessing out of your ROIs by tracking all traffic and success rates for you.
Another concept that is crucial to the equation is to ensure you maintain competitive pricing. While it may be tempting to stay conservative on pricing options in order to increase your profits, experts say it’s best to remain competitive.
“Consumers view value in different ways and pricing yourself out of competition is going to kill your ROI.” – Chad Reid, Director of Communications for JotForm via Comidor.com.
Lastly, one of the best ways to increase your ROI is to carefully choose the costs that are incurred on the front end. While you don’t want to skimp on critical pieces or strategic campaigns, there are ways you can minimize costs. Determine what pieces of your investment can be done in-house (successfully), and keep your in-house overhead to a minimum. Co-working office spaces are a great way to do this, as are mobile work stations because they allow ample opportunities to develop your investments at minimal cost. Overall, there are a number of ways to increase your ROI at every step. The key is to fully research your costs and carefully determine the best strategies for each particular venture.