Most businesses have a variety of financial ratios they use to measure success. For marketers, a key number to know is ROI, or Return on Investment. ROI is a method used to evaluate the profitability and effectiveness of an investment or expenditure. One of the goals for businesses to be successful is earning and increasing their profits. ROI is the most helpful performance measure when it comes to analyzing profit. Knowing how to utilize tthis metric will help create benchmarks for future business decisions since you will understand what worked best.
How to Calculate & Interpret ROI
ROI can be calculated as a percentage. The formula can look something like this:
(Amount Gained – Cost of Investment) / Cost of investment
So, if you spent $100 on an investment and gained $100 from it you would have an ROI of 1 or 100% expressed as percentage. How to interpret ROI is simple: A positive ROI means there was a gain, and a negative ROI shows a loss.
Where ROI Can Be Utilized
Every business relies on equipment of some type, and upgrading parts or buying newer models is an investment. If a new piece of equipment increases work efficiencies or shortens production time, you would probably have a positive ROI. If a new piece of equipment fails and causes delays in production, then a negative ROI would come into play.
Investing in new software for the company is another area to produce ROI. Anything involving new technology can be expensive. To get the most out of spending a big chunk of money on new software, make sure it improves whatever function it was made to serve. Seeing a positive return in this area can be beneficial, but it may be a longer timeframe to achieve the position ROI.
Seeing a return on investment is not limited to physical items. People can produce a ROI too. When hiring a new employee, a lot of time is put into the interview process, as well as training. If that employee then up and quits right away or does something to negatively impact the company, they would create a negative return. Investing the time to hire quality candidates and lower turnover rates is key to ensure the human aspect of your business is producing a positive return.
Analyzing the ROI is commonly done in marketing to measure campaign effectiveness. When a marketing team implements a new campaign, they have a specific goal in mind: to increase brand awareness, growth, or a following. If a marketing campaign is successful in its goal, then the time and money spent on creating it will see a return. Marketers like looking at past campaigns with positive returns to take what worked well and re-implement it into new campaigns.
Boost Your ROI with PMD Group
Every company is different in what brings in positive ROIs. If you need assistance in seeing positive returns within your marketing strategy, contact us so we can start boosting your campaign success.