Feb 21 2023
Why is ROI an Important Driver to Success?
Let’s look at why ROI is an important driver to your success and what you should be asking yourself to calculate an ROI for your business.
ROI- Return On Investment- is difficult to measure and isn’t likely to be very accurate. When we think of ROI, we think, what is the total time, resources, effort, and cost to drive success? But how do you quantify effort? In marketing, how do you measure success?
So, if it is so hard to calculate, do we need ROI?
The honest answer is NO. We don’t need a specific ROI ….UNLESS you are comparing it to another investment OR you want to evaluate if you are getting a return on a specific investment.
For digital marketing, ROI is an important driver, even though it is difficult. We should measure to see whether our money is well spent. Check out the most common mistakes businesses make in digital investments here.
So Why Should I Have an ROI?
Most businesses devise a plan for a new idea or process without thinking about how the execution should generate positive results for their business. Their only goal is to be successful. BUT can you truly answer that without defining your ROI?
Before you even start the ROI calculations, ask yourself, “Does the investment answer these three questions?”
- Is this investment paying out?
- Is this investment better or worse than our other investments?
- Could we generate a better return on our investment?
Is the Investment Paying Out?
Meaning is it generating a positive return or profit positive. Remember it is often hard to quantify exact touchpoints (link clicks, views, engagements, emails sent, emails opened, the list goes on) for marketing, but the goal is to find as many quantifiable aspects to the investment to evaluate success.
Backward Math – What Would it Take?
The first calculation is backward math, where you aim to answer the question of what would it take for this to payout.
Social Media Management Example
I’m considering investing in social media management for my insurance agency. We get about 100 comments a month (positive and negative).
- Cost of management $2,000/month
- Lifetime profit value of customer $500
- Need four new customers a month to break even ($2,000/$500)
- 1 in every 25 commenters needs to be converted into a customer for this to payout
- Possibly also an impact from people who see the comments but aren’t the commenter
Backward math asks what is needed to pay out. It is a simple way to answer whether an investment has a positive ROI. So for the example above, a positive ROI would be four new customers a month.
Calculating the Investment
This is where you take into account all of your costs in the marketing activity. Be sure to consider the following:
- Setup costs
- Launch costs
- Content costs
- Media or promotion costs
- Running costs
- Maintenance costs
After you have added those costs, ask, is the investment better or worse after you apply it to other investments? Remember, sometimes it is smarter to do things better than start something new. FOCUS on your investments.
With many of our digital marketing efforts, we know they are working (data from specific touchpoints), so the question isn’t really if they work, but rather do they have a positive ROI? If we believe we have a positive ROI, our focus should shift to growing and improving our ROI.
Can you get a better return with the same investment?
Can you get the same return with a lower investment?
- Reduce time spent with tools and processes
- Reuse and repurpose content
- Determine what something is “worth” and set a budget
- Test and learn to improve over time
- Analyze results to grow
- Increase your reach since your investment in content is fixed
Remember, you can often generate a better return on your time/effort by focusing on the quick math and improving your ROI. THINK IMPACT and let your measurement efforts where you have the biggest impact on results be the important driver to success for your ROI.
To learn more about measurement, check out our digital measurement and analytics training course.
Read more about ROI in Digital Marketing That Actually Works by Krista Neher, found on Amazon.
Read some more of our recent posts