One of the most important concepts to understand and track in your business is your return on investment (ROI). Mastering this can make all the difference between success and failure.
What Is ROI?
ROI can be defined as the profits generated by a company’s activities, from sales and marketing to customer service. In particular, businesses tend to spend a good deal when it comes to marketing, so it is important they make sure they are not spending more than they are profiting. It’s easy to lose track if you’re not careful.
Why Track Marketing ROI?
It is crucial to track marketing ROI because it is very easy for your costs to run away with your business if you are not careful.
There are two different forms of marketing, “free” and paid. “Free” is not really free, though. This is because someone needs to take the time and effort to do the activity. For example, search engine optimization (SEO) will help lure the search engines like Google, and therefor people as well, to the content at your site. But it does require keyword research to see what terms will attract a large number of customers, and the effort to write the content, keyword it, and track its performance. Even if you only calculate the rate of pay as minimum wage, these hours can all start to add up over time.
SEO does work, but it also takes time to see results. Even worse, one algorithm (formula) change by Google can mean your top-quality site suddenly vanishes from view.
With pay per click (PPC), it does cost money, but you will usually use the same keywords as for SEO and the results will be a lot faster. You can test two different versions of a sales letter and find a winner in a matter of hours rather than days.
It is true that the ad systems like Google AdWords have their own rules, can be confusing, and might change, but it is also true that a good ad with a high conversion rate that results in consistent sales can bring you huge ROI.
Facebook and Twitter ads are even more targeted, and cheaper too. The system is easier to use than AdWords and the reports simpler to understand, so you can calculate your ROI much more easily.
Factor in both human cost and marketing cost to make sure you are not spending more than you are profiting.
The Cost of Doing Business
It is important to keep track of the actual cost of doing business in general, and in relation to each product in particular. As a business, you have lots of small costs that can all add up, such as:
- Your domain name registration
- Monthly or annual website hosting
- An email marketing service, such as AWeber
- Marketing tools you have to pay for
And more. Knowing what things cost in terms of time and/or money is essential to a high ROI.
Other Things That Can’t Always Be Measured
ROI is important, but can’t always be measured in terms of loss and gain. For example, social media marketing can extend the reach of your brand, but what criteria are you using to determine success and a good ROI? Setting a goal of how many new subscribers you want from each campaign, and/or how many sales, can help you stay on the right track.
Building brand can boost revenue in different ways as well. For example, it will be easier to start your own affiliate marketing program and get people to sell you products in exchange for a commission if your brand is well-known and respected. You can also get more partnership deals and media coverage if people know and trust your brand.