What is ROI and why it matters for business

ROI–return on Investment is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. It is used by both financiers and marketers. Companies also use ROI in marketing to calculate whether it is rational to invest in a particular marketing channel.

When an entrepreneur invests money in an ad campaign, they analyze the sales generated by the ad and use this information to determine their return on investment. If the money received exceeds the amount spent, the company may consider it an acceptable return on investment.

The problem is that many different factors are not taken into account when calculating ROI.

When calculating the annual return on investment, you look for the average annual return on investment earned during the investment period. This shows you how profitable the enterprise is, which is useful because the ROI does not include the investment retention period in its formula. The annual return on investment will help you analyze and compare the performance of your investments over certain time periods.

As an example, you can take ads on the streets. We don't know who exactly saw this ad or how many people saw it. Also, the ROI will not show how useful these marketing events were, and what the relationship with the audience became after that. Therefore, ROI is most often used for calculating one-time investments. At the same time, the result itself shows only financial usefulness.

ROI measures the growth or loss of funds invested in a business.

Why ROI matters for business?

Only smart businesses that spend wisely and monitor ROI closely survive in the long run.

If you aren't seeing an optimal ROI on a certain endeavor, stop throwing money at it, you're better off scrapping it. Continuing to spend on losing causes is a sure way to spend all the money and bury the business.

ROI allows you to see the fruits of your investment or its lack, which is important to always have a handle when running a business.

What is a good ROI and how to increase its values?

It all depends on the scope of its application and goals.
To better understand what you need to work on and what you are doing right, you should conduct a monthly ROI analysis.
As a result, this will give you an absolute advantage over competitors who don't have a lot of detailed statistics. Knowing the return on investment coefficient allows you to increase the return on invested funds due to their correct distribution.

How to increase ROI values:
  • Formulate clear and achievable goals before launching a campaign;
  • Conduct a monthly ROI analysis;
  • Use different channels to place ads and track their effectiveness;
  • Explore and look for new opportunities to improve your business.
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