InvestorSMEStart-up

What Does Return Of Investment (R.O.I) Mean and Why It’s Important?

In simpler terms, if you put money into something the Return of Investment (ROI) is what you would gain from that investment. Let’s say you paid £1k for an influencer online to promote your product, the return of investment could be £3k from the outcome of that investment, due to people being influenced and buying your product. It is basically what you are going to get back to what you put in, and more.

This doesn’t necessarily mean just influencers but it can mean hiring someone who is an expert in the field, therefore, you need to think, ‘what is the minimum you have to bring in from that staff member to make their job tenable’? Now, this can be valuable to the business, but as a startup, you have to look at cash in the till. How much cash in the till must that staff member bring or indirectly bring in to make it worthwhile. Don’t forget you want to make a profit – what’s the point of investing money to get nothing out of it. What is the return?

 

If you have heard this term then you have probably heard of Customer Relationship Management (CRM), this is where you have someone delegating to monitoring this area, such as; running campaigns, generate leads, forming a database, track opportunities, and develop a knowledge base to continue growing. You can then adjust these as fit, to see what changes will affect your reactive sales or your lead generation. Marketing can be as much as changing something so small such as the images on your website to pay per click advertising or SEO. At the end of the day it is a huge mixture of activities that you use to essentially get customers to buy from you and it will take some time before you become an expert in this field, due to the fact that every business and therefore every customer is different and will need different methods to attract them.

 

Now for the Maths part! To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio;

 

ROI % = (Gain from Investment – Cost of Investment) / Cost of Investment

 

The “gain from investment” refers to the proceeds obtained from the sale of the investment of interest. As the ROI is measured as a percentage, it can be easily compared with returns from other investments.

 

Get in touch with a member of the team today if you want to talk about what you could gain from certain investments.

 

Brad Channer,

Director, Acceler8me.