Crash Course
On the off chance you’re perusing this blog post feigning a lack of confusion over what ROI even is, don’t worry, we’ve got you covered.
At its most basic, ROI (return on investment) is a way to calculate how much money you’ve made compared to how much money you’ve spent to run your business. Ideally, you’d like to make sure you’re bringing in more than what you’re paying to keep things running.
We’re about to share a nifty math formula to help you determine your ROI and make you feel very professional, but feel free to scroll by quickly if it’s going to give you high school Algebra flashbacks:
ROI(%)=(Net ProfitCost of Investment)×100\text{ROI} (\%) = \left( \frac{\text{Net Profit}}{\text{Cost of Investment}} \right) \times 100ROI(%)=(Cost of InvestmentNet Profit)×100For example, if you spent $100 on a project and made $150, your net profit is $50.
Now That the Math Part is Done
It’s time to put your new ROI knowledge to good use. Knowing if you’re making or losing (or breaking even) is good information to determine what works or needs to change. But ROI is useful for more than just profit margins.
- Other Industries: Your ROI doesn’t exist in a vacuum. To make sure you are on track or surpassing goals, it’s helpful to compare your business to others in your industry. Make it a runway, and take off.
- Holding Power: Evaluating your ROI regularly can indicate if you’re trending in the right direction and guide you back to a path of profitability if you temporarily lose your way.
- It’s in the Timing: ROI can also let you know if there are certain societal trends or times of the year that are more profitable than others. This can help you determine changes to make to either increase profitability all the time or ramp up operations during more prosperous periods.
- Learn Your Weak Spots: Is ROI in a particular department low for a reason? Do you need to up your sales techniques, try to cut production costs to a more sustainable level, or hire better staff? Maybe you need to shift your marketing campaign and strategy. Seeing where your results are lower can indicate and guide the necessary evolution of your business.
- Put Your Money Where It Matters: You can also track the success of each marketing campaign to assess which strategies are most effective, allowing you to refine future strategies and reassess your branding weak points. By utilizing UTM (Urchin Tracking Module) codes onto any URL, you have access to analytics separate from your home site. UTM codes give you information about:
- Traffic Sources: You can see exactly where your website traffic is coming from, whether it’s from search engines, social media, email campaigns, or other sources.
- Campaign Effectiveness: By tagging your URLs with UTM codes, you can measure the effectiveness of your marketing campaigns and understand which ones are driving the most traffic and conversions.
- User Behavior: UTM codes allow you to track user behavior based on their source and campaign, helping you understand which marketing efforts are most successful in driving desired actions.
By tracking conversions and sales associated with specific UTM-tagged URLs, you can calculate the return on investment (ROI) for your marketing campaigns.
A Cool Tool
We know you do what you do because you love it, but there’s no shame in admitting that the reason any of us works is to ensure we make a profit. Mortgage payments and grocery bills don’t accept passion as payment (oh, if only they did), so it’s important to make sure that you’re equipped with the tools needed to measure your successes, both current and future.
By understanding and using ROI, you can make better business decisions, utilize better sales and marketing strategies, and ultimately make more money from the inevitable investments that come with running your business.