5 Tips on Calculating ROI for Small Businesses
When you run a business, it’s essential to invest in long-term business goals that pay off. Doing so earns you a return on investment (ROI). However, to determine how well your investment performs, you need a reliable way of calculating ROI.
Unfortunately, this task is much easier said than done. Several issues could arise to throw off your numbers. This occurrence then renders your calculations ineffective.
To avoid these many issues, you must understand the best practices for calculating ROI. Fortunately, we’re here to help you! Read on to discover our 5 tips for accurately determining your ROI.
1. Common ROI Factors
When you calculate your ROI, you’ll use a seemingly straightforward formula. That formula looks like this: (Sales Growth $ – Marketing Spend) / Marketing Spend = ROI.
As a side note, you’ll sometimes see ROI written as MROI in this formula. The M stands for marketing.
To make this formula accurate, you must add in all of your marketing expenditures. This expense requires certain factors you may neglect. These include your staff’s pay, advertising expense, software, social media, sponsorships, equipment, content creation, and others.
Also, remember how much each of these factors adds to marketing. You may use parts of your social media for things other than marketing, for example. In that case, only add the part of the budget you spend on marketing.
2. Add the Appropriate Sales
When calculating ROI, you’ll need to ensure you accurately track your sales. To do this, establish an efficient sales starting point for the year and a clear endpoint.
To get accurate sales tracking, it helps to use reliable software. To learn more about ROI calculating software, check out this guide.
3. Using Granular Data
Granular data can be a decisive metric in calculating ROI. Using granular data in your ROI calculations involves looking at the ROI of specific subsets in your data. If a subset shows an extraordinarily high or low ROI, examine each of its factors to ensure they’re relevant.
Once you do so, you can see whether you should invest more in high-performing areas. Alternatively, you can cut low-performing areas free.
4. Do You Want Lifetime Customers or Immediate Sales?
In marketing, you’ll often find that lifetime customers generate your most lucrative revenue. So when you run sales and marketing campaigns for long-term customers, focus more on them than on new sales. This practice allows you to calculate your ROI more accurately for your goals.
5. Examine Sales and Marketing ROIs Separately
Regardless of your ROI focus, your sales team will have an impact on your marketing ROI. If you want to draw the most accurate conclusions for your regular ROI reports, you may want to examine the two departments separately.
This way, you can receive more conclusive data, allowing you to identify problems and trends, and determine how to address them.
Start Calculating Your ROI Today
Calculating ROI can be a tricky task. However, if you consider all of these points, you can calculate your ROI in a much more accurate way. This information can then help your business to grow and develop in unbelievable ways.
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