What Is ROI? Why Is It Important for Your Business?

7 min read

April 8, 2024

Disclaimer: The return on investment shows how successful your company is and whether your existing expenses are acceptable.

Businesses use various metrics to measure their success. We have touched upon the most important metrics for assessing the performance of a call center. In this post, we will focus on one of the indicators revealing the financial potential of any business. ROI demonstrates how well your company is performing and which areas demand extra attention.

What exactly is ROI?

ROI is an abbreviation for return on investment. This metric displays how much your company has made as a result of previous investments. Calculating the ROI indication assists in assessing the existing situation and planning a future marketing strategy. It also enables business owners to better understand how much investment is required in certain areas and when to expect a profit gain.

How to calculate ROI?

The formula for calculating ROI is the following: you should divide the profit the business has made during some time period by the investment for the same period and multiply the result by 100 to get the percentage result.

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How to use ROI?

ROI can be measured for any department and for any time period. For instance, if a business owner needs the ROI indicator for a year, all the costs are calculated, such as salary increases, new staff employment, new equipment, etc., and divided by the yearly income. The same can be made for a shorter period or for a separate department if there is a need to find out the efficiency of a separate department in a company organization, for instance.

The ROI figure can be used not only for internal purposes such as planning the company’s strategy or making important decisions regarding the extension of the staff. Angel investors and venture capitalists are interested in ROI before making investment decisions. Startups and small companies looking for third-party investments should carefully calculate the ROI and provide evidence for the future possibilities of business development.

The success of separate projects can also be measured. If an IT development company launches a new project, it is useful to calculate the costs spent on the development process, testing, and advertising and see how the figure relates to the profit received. Further decisions may be connected with extending the functionality of the project or getting rid of some pricey advertising campaigns.

Why is ROI important?

In a situation of fierce competition, companies cannot afford to lose money. The sooner they realize any ineffectiveness, the better. Calculating ROI helps demonstrate the potential for long-term profit growth. For instance, it is possible to learn if a new tool will be productive in the near future: will it bring more conversions and sales? Besides, the ROI metric can show whether adding a new expert to the team is cost-effective and relevant. The development team may calculate the ROI of an ongoing project and plan future expenses and revenue.

To summarize, keeping track of the company's ROI allows business owners to plan for the following groups of issues:

✔️ Making use of emerging technologies.

You can divide the price of a new tool, together with the learning curve expenditures, by the profit received after a proper implementation of the tool. If you are on the safe side, the result will be an increase in productivity. Thus, an ROI indicator shows if any program optimization is reasonable for the current situation. If the implementation is just planned, average training expenses can be taken into account for the calculation. The profit from the implementation can also be forecast on the basis of financial history.

✔️ Recruiting new employees.

Does your enterprise need new staff, or do you have too many people on the team? Assessing the ROI of your employees will provide this information and show if you can afford to hire new experts. A better solution would be to expand the team with remote employees or outsource a few tasks to gain expert assistance while saving money. It will be a temporary budget item, and the business will not have to plan significant investments.

✔️ Establishing new departments.

The expediency of forming new departments can also be calculated with the help of ROI. This is especially important for a growing business. When is the right time to form separate departments out of a whole, closely connected team? Will it be effective for general performance? Measuring the ROI indicator will provide the answer.

✔️ Improving sales methods.

Any business has several strategies for dealing with different types of leads. The way you guide the leads through the marketing funnel is crucial for closing the deals. The ROI indicator will help you evaluate your current efforts. For huge enterprises, this is especially important, as they normally offer several products. Therefore, target audiences, advertising channels, and methods of communication are different. A separate marketing strategy must be developed for every product and every market niche.

✔️ Enhancing marketing campaigns.

How much money do you put into marketing? Are you making the most of your traffic channels? Have you tried a variety of advertisements? With the ROI, your marketers will be able to evaluate how much they are achieving with what they are currently doing and consider potential changes. It will provide them with valuable insights that can improve sales and help them visualize their future development strategy.

How to boost ROI?

The most obvious answer is to invest wisely. Another simple piece of advice is to plan the whole business strategy, taking into account the performance of all the departments. For instance, measure the ROI for the marketing, sales, and development departments. Analyze the areas that require special attention and make relevant changes. After that, repeat the measurements and assess the results.

As for the marketing efforts, apart from ROI, there can be ROMI and ROAS measurements performed. ROMI means return on marketing investment. It is a term used specifically for marketing costs, while ROI is a more general notion. ROAS stands for return on ad spend. It includes only the costs of launching advertising campaigns. Some tools that can come in handy in the process of evaluating marketing efforts include:

  • 👉Google Analytics: It is one of the most commonly used marketing tools today. It provides marketers with relevant information regarding organic traffic, online campaigns, and target audiences. Google Analytics is not only a treasure trove of useful insights but also a perfect tutor for those gaining relevant experience in the spheres of marketing and SEO.
  • 👉CRM systems: Customer relationship management systems are critical for companies that want to keep their market segment for a long period. CRM systems contain important customer data and share it with sales and marketing teams for easy interaction and to unite forces on the way to increased conversion rates.
  • 👉Call tracking software: Call tracking platforms allow marketers to monitor both online and offline campaigns and optimize them in real time. They can also show details about the target clients, identify the most productive traffic channels, assess the work of the team, and much more.

Bottom line

Any part of business requires careful ROI measurement. Therefore, this important metric is in the toolkit of business owners, CEO specialists, marketing experts, etc. Any enterprise needs investment at any stage of its functioning. The ROI indicator can display clear work outcomes and flag trouble areas.

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Comments (2)

TenjikuJanuary 4, 2023
What are the Dialics metrics for evaluating ad campaigns?