The whole concept of ROI or Return on Investment is a mystery to most marketing departments but they do know it is a buzz term they need to use. Let’s break down this concept and perhaps the next time you see an ad or a web site that touts ROI you will actually understand how to really know what they are not saying.
ROI is a financial term. You make an investment in a marketing initiative that you have been told or you believe will actually return that investment and then some addition money. That is a positive return, all good right? To truly determine that answer you need to completely understand how to really calculate that ROI.
Start with your “baseline numbers”. These numbers represent what you are doing now in terms of revenue (sales) and expenses to pay for getting that revenue. It is something every company must do in order to show how much money they get to keep after collecting a sale and then paying people, vendors and operating costs to deliver that sale to a buyer.
Working from this baseline, ask yourself or even better the company you are giving your hard earned investment cash to, exactly how much above my baseline will your marketing product or service bring to my business? Then calculate how much will each of your expenses go up as a result of now increasing your sales number. Finally, add in the total cost of the marketing product or service. Take your total new sales number and deduct the increased expenses and additional cost of the marketing product or service to arrive at your ROI.
Is this still a worthy ROI? What happens if you agree to move ahead and then find out nothing much changed and you have now spent the cash on the marketing product or service? There is no chance that company who boasted about ROI will be there to give you back your money!
Your best solution is to work with a company that agrees to be an investor with your company. That model means they stand behind what they say they can do to increase your sales and maintain your expenses to achieve a measured bottom line ROI. They back that up with agreeing to make a profit from their work only if they actually deliver a measured ROI to you. Anything else is simply a lot of marketing fluff and has no place with a term called ROI.