Business success is mostly a series of making the right decisions. This can range from having a solid business plan to creating a smart reaction to a crisis. However, the biggest difference-maker on a daily basis is how well you are allocating the resources you have. The main goal here is to always get a positive return on investment (ROI) in anything that you do. Investing in a new piece of software? Make sure that the new business it brings in is worth the money. Are you hiring new employees? Make sure the onboarding time is paid back tenfold in the efficiency you get later on. So, how do you determine whether the ROI is worth it or not? This all stems from knowing how to measure ROI, and we’re here to help you get started.
The Need For ROI Measurement
Before discussing how to measure ROI, let’s talk about what makes it so important.
- Most small businesses fail due to cash flow problems. Knowing your possible ROI ensures that you don’t take a major cash flow hit for minimal payoff.
- ROI allows employees to buy into your decisions more. Saying you’re doing something because it will have tangible benefits later will get people excited.
- ROI can ensure maximum efficiency. You don’t want to start a new initiative that will cost you a lot of time if you aren’t going to see many benefits from it.
How To Measure ROI
Most people talking about ROI mainly focus on it in terms of finances. This is a fair assessment to make, but we recommend looking at how to measure ROI in a more rounded sense. Any business expense that you make represents some form of investment. As a result, you want to make sure that a decision you make isn’t just saving you money but paying off in other ways. Here’s a look at how a single decision can impact ROI in multiple ways.
For example, let’s say you are thinking about changing your office location because the area’s rent is too high. The financial return on investment seems pretty straightforward. After all, you pay less in rent every month, which means more money to shore up your cash flow or put towards other areas. However, you want to make sure it provides a full return on investment for you. Here are a few areas that could be impacted by your decision.
- A move may put your building further away from where your employees live, giving them a longer commute. This may cause them to be late for work more often or potentially want to leave.
- Moving your business out of a major commercial hub may lose you potential clients, depending on your industry.
- A cheaper office building may not be in proximity to certain areas that you enjoyed once before.
- You will still incur costs related to the actual move as well as redecorating the office if needed.
It’s clear how much fallout can come from a single decision. For example, if you lose employees due to a significant office move, the rent you save may not be as great an ROI when you add on the costs of onboarding new employees in terms of money and time. In addition, if these are veteran employees leaving your company, the cost in terms of expertise may be difficult to quantify. Decision-makers in companies need to understand that there’s more than just the bottom line when it comes to profitability. You should measure your ROI based on the following points:
- How much it saves you financially
- If it improves your efficiency
- If it improves the quality of life for employees
- If it opens up your business for new opportunities
Taking a financial hit may be worth it if it boosts you in another area. For example, if you make a financial investment to grow your business and it pays off, you’ll make that investment back soon enough.
From finances to time to employees and other resources, every business expense you make is an investment. The ROI you get is ultimately an indicator of the efficiency and health of your business. As a result, knowing how to measure ROI is a way to indicate how well you perform as a business and whether you need to improve.
In many cases, the best way to improve your ROI is by bringing the perspective and expertise of an outside professional who can introduce new practices and concepts to your team. In the marketing world, an agency like Glint Advertising is ideal. By better understanding your business goals, we can make sure you get more out of every resource investment you make.