Return on investment (ROI) is about comparing what you put in to something with what you get out of it.
It’s usually calculated in terms of cold hard cash – but there’s so much more to it than that!
Get in loser, we’re going time travelling
Back in the olden days (you know, like 20 years ago) you’d look at how much a magazine advert had cost you and how much it had generated in sales, and divide one by the other.
The calculation for ROI tells you that for every £1 invested in the advert you get £X value of sales in return.
So if an advert cost £100 and you could attribute £1000 of product sales to it, dividing one by the other shows that for every £1 invested in the advert you get £10 of sales in return. That’s an ROI of £10. I’ve also heard it called a ’10x return’.
I used to work in PR and promotions. We calculated the value of our coverage based on the advertising rate. If a press release was published across a full page, we’d say the coverage was worth what a full page advert would cost. And then we could use that ‘cost’ in an ROI calculation.
Things are a bit different now
These days (OK, for some while now) we have social media platforms that don’t have a simple rate card to calculate the cost of an advert and its equivalent coverage. And we have email marketing, and websites, and podcasts, and YouTube channels…
Say you’re trying to work out which of those marketing activities to focus on. How do you know which ones are worth it?
The easy answer is to focus on the ones that bring you the best return.
But if you’re not spending money on something, how do you calculate the return?
What does this stuff ACTUALLY cost?
Most small business marketing activities don’t cost money.
It’s you, the business owner, posting stuff on social media or writing email newsletters or publishing blogs or going to networking events…
But these things cost time.
So how do we calculate that?
Here’s some questions for you:
– how much time are you putting in?
– what value do you put on your time?
– could you use that time better?
You have calculated the cost of your time for working with clients or making products, haven’t you?
(I have a guide for working out pricing, give me a shout if you’d like a copy)
What are you getting for the time you’re spending?
Quick note: You’ll never be able to assign every hour in your business to paying work. There’s always admin, business development, marketing stuff that takes your time. Even if you outsource it, you’ll have to spend time on meetings and discussions with the assistant/agency.
Let’s say you spend 2 hours a week on email marketing, and you charge clients £50 an hour for consultancy. So you need your emails to generate £100 of sales each week to break even (an ROI of £1). Are you getting that return?
The important thing about calculating ROI is how you use the figures once you have them. As well as calculating ROI to decide which marketing activities to keep doing, we can use those figures to see how we’re improving – eg, to see how close to break even your email marketing gets.
As there’s 2 sides to the ROI calculation, there’s 2 ways to improve it:
1) Reduce the amount you invest (ie do things yourself or only do the free stuff);
2) Increase the returns you get.
What if you could have the equivalent of £100 a week generated by your emails? We can’t reduce the financial investment if you’re already doing it yourself, but we can find ways to increase the return.
Consider the non-financial costs
Here’s the thing – a big cost to our small businesses is the negative effect of not doing something well.
You could be putting hours into writing emails that no-one reads, because you have great ideas but your writing doesn’t convey them clearly. Or you send people to a website you created yourself, but it’s too complicated to find things so they click away and go somewhere else.
This is where paying someone REALLY makes sense. This is where you can increase the returns you get. Using an expert will do that – that’s why they’re experts!
But I don’t have the budget for that, Clair! Neither do I…
You don’t have to outsource the whole thing to an assistant. Just get a bit of help from an expert.
Pay someone to review your website. Buy a copywriting course. Book an afternoon with a social media specialist.
If you’re not sure what help would be the best help, give me a shout.
Final quick note: Don’t underestimate the cost in the effort that things take. If you hate doing something or it really drains you, that’s more than just time it’s taking. What is your state of mind worth?