ROI is a powerful equation that can benefit every aspect of business and life. All decisions, from whether or not to take on a new client to when to launch a new campaign to if one should break up with his or her boyfriend/girlfriend, ought to be made based on the principal of achieving a positive ROI.
What is ROI?
ROI stands for return on investment, a simple formula and concept that measures the worth, or worthlessness, of an investment.
ROI’s formula is below:
Sinking your time or money into an investment with a bad ROI is like the quiet geek who is madly in love with the out-of-reach cheerleader. He pours money, time, and effort down the drain trying to get this girl of his dreams. At the end of the day, the girl will still go out with the star quarterback and the geek will have wasted his resources.
It is important to pursue business decisions that you believe will lead to a positive ROI. Take for example, one manager’s recent decision to invest in a new marketing campaign. The manager knew that the campaign would cost just over just over $15,000, and he hoped to sell an additional $10,000 in services because of the campaign. A wise manager would calculate his expected ROI on this campaign before giving the expenditure a green light.
ROI = (10,000 – 15,000) / 15,000
This campaign would result in a -.33 ROI, meaning that this manager was about to lose 33 cents for every dollar he spent. Imagine the dismal situation that would have occurred if the manager had not checked his ROI first, but had just launched the campaign because it felt right.
Like goals, it is important to measure a project’s ROI before and after its completion. An ROI calculation after a project has been completed is an effective measure of the success or failure of the project. Assess all of your projects based on its ROI. This will help you to determine if you will repeat the project, and if you do repeat it, how you will change it to optimize your ROI.
Focus on ROI. A project may seem like a great idea, but when looked at more closely, it may not be able to produce enough revenue to pay for itself. Rather than going with your gut in all of your business decisions, look at the probably ROI and decide accordingly. Finally, measure everything. It is hard to know if a decision was profitable if you do not measure the results.
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