When it comes to adopting new tools or methods, measuring the Return on Investment (ROI) plays a big role. But what does it mean and what do you need to consider when applying it?
What does Return on Investment (ROI) mean?
Quite simply, return on investment is the (financial) profit that can be expected or that has been received from an expenditure. Meaning, if you do something that costs money and/or resources, you want to measure whether the investment was worth it by checking what advantages (financial and otherwise) you’ve gained.
When written down as a calculation, ROI is expressed as a percentage:
Revenue / Expenditure x 100 = ROI%
Short vs. Long Term ROI
Even though the initial equation is relatively simple, the ROI is not just one single number because profits can’t always be simply evaluated as revenue. For example, the Return on investment could also be
more effective processes,
savings in resources,
fewer service cases,
Therefore, when looking at the ROI, it is important to clearly identify what the benefits of the investment are and how they can be calculated.
Investments can cause short- and long-term gains
Investing in search engine optimization (SEO) to increase website reach can take years to fully realize its potential. It is hardly ever immediately measurable since improving SEO is a process that takes time.
Meanwhile, adding a new payment option to an online store can have immediate results by reducing shopping cart abandonment due to missing payment options and therefore increase purchases.
Because short-term results are often prioritized over long-term results, it is important to clearly communicate when and what results can be expected with each investment. Some investments only have long-term results which must be communicated early on, so false expectations don’t influence the project negatively. Results must be realistic and should be defined together with the people who eventually profit most from the investment.
A successful ROI should take into account the value and the timeframe until a profit is achieved. At the same time, an investment may very well have short-term and long-term goals that should be measured accordingly.
Track complex ROIs
While the ROI is often relatively easy to assess in sales, it is often more difficult in areas such as marketing and service, where many processes, campaigns, and actions do not directly lead to a profit. Still, it’s probably undeniable that effective marketing and good customer service pay dividends to a company’s revenue.
Methods such as closed-loop reporting or attribution models can help track positive influences on sales even if they occurred long before the purchase decision was made, for example.
Central management of customer data (360° customer view) can also help identify both positive and negative influences throughout the customer journey. Analytics and artificial intelligence can be used, for example, to find unusual numbers or correlations on customer journeys or particularly high sales increases.
For projects that impact workflows and time management for employees, surveys might also be helpful to gather information on the benefits. If 89 % of CRM users in a company feel that they spend less time on manual tasks because the new platform makes automation easier, then this is a convincing ROI for the new platform.
ROI should be understood not only as a number. It is also a metric to optimize processes, strengthen collaboration, and plan investments.
When planning an investment, identify what you want to achieve with it (= ROI).
Develop reports and measurement methods that enable more complex ROI, such as attribution models or closed-loop reporting.
Use the ROI to link different business units and optimize cooperation.
Work with short- and long-term ROI.
Support measuring your ROI with predictive analytics and artificial intelligence.
With business intelligence, you can smartly measure and analyze your ROI values. Learn more about the topic on our info page.
https://www.ec4u.com/ec4u-blog/wp-content/uploads/sites/3/2021/05/goal_AdobeStock_387118238.jpg270710Juliane Waackhttps://www.ec4u.com/ec4u-blog/wp-content/uploads/sites/3/2016/02/Logo-ohne-Schriftzug.pngJuliane Waack2021-06-24 08:00:582021-06-24 08:17:46Return on Investment: Tips for your ROI metrics