Here is what ROI is and how to calculate it properly
In order to be successful in business, it is most important to know exactly a number of indicators, one of the most important of which is definitely the return on investment.
The acronym ROI stands for just that, and if you are an entrepreneur or play a management role within a company, you will know how important it is to constantly keep track of what is happening around you.
When it looms The establishment of a business strategy or the launch of an advertising campaign, it is essential to have reliable and up-to-date data that will make your choices more informed and allow you to make very accurate estimates of what the economic return might be as a result of each decision you make.
In this article we will clarify the importance of ROI and find out how we get an estimate of the economic return (and more) following an investment.
What exactly is ROI and what is it for
There is no point in denying it: anyone who engages in a business does so with the goal of seeing earnings grow. To achieve results in this regard, it is very important to make judicious investments, accompanied as much as possible by certainty.
In this regard, making use of market research andcompetitive analysis allows for informed planning of every move and enables ROI optimization.
The acronym ROI stands for Return of Investment, or return on investment.
This indicator is used in business as well as in finance, and is used to determine the profitability of an investment made for a marketing campaign, for equipping a company with systems or machinery to increase its productivity, or for any action that has development and growth as its goal.
Have you ever found yourself making an investment without considering the financial return it would provide?
Read also: Network monitoring: knowing how to listen to be able to take successful action
This is a common situation for many entrepreneurs, who sometimes allow themselves to be influenced by emotion and are so convinced that a decision will bring them something positive that they completely ignore objective data.
Instead, to operate responsibly, one must never lose sight of this valuable indicator, which does not only take into account the difference between invested capital and revenues, but also considers all expenses.
Let’s see how you can calculate ROI.
How ROI is calculated: this is the formula to use
To get an actual feedback on the return on investment, simply use a formula, which involves dividing the total revenue obtained as a result of an investment by the capital invested, including provisions and depreciation.
The result brings up a value that indicates the percentage profitability of your investment.
But is it really that simple to calculate ROI?
It depends on the scenario. Let’s take an example.
Assume you buy a house to the tune of €90,000 and spend another €10,000 to renovate it. The sum of these two values will constitute the net invested capital.
By selling the house for €120,000 (total proceeds of the transaction), you will find yourself dividing this amount by the invested capital and get an ROI of 20 percent.
In a case like this, the return on investment is immediate and easily detectable. But there are situations where the effects of an investment are not so sudden and where other factors may take over.
Imagine you start a radio advertising campaign: it is possible that the results may not be tangible from the start, but you should not think that the ROI of such an operation is negative.
Moreover, this indicator cannot always be quantified exclusively by immediate economic return.
Let us make this point clearer.
ROI is not just about money
We have said it and we do not deny it: any investment, to be profitable, must produce an economic return.
However, there are situations in which the first results may look like failures from a strictly monetary point of view: with a very low ROI after a month or six months, it is easy to think that a given marketing campaign has failed miserably.
In reality, however, other indicators also need to be analyzed, which could result in gradual growth in the long run.
One such indicator is Social Return on Investment, which is the social impact that a campaign or corporate setting has had on people.
Although corporate reputation is invaluable, it may not emerge in terms of sales within a few months of an advertising campaign, in which you perhaps highlight an impactful decision.
Read also: Competitor monitoring: how to do it and why it could be your trump card
Have you opted for a green turn for your company? Have you created new jobs? Or maybe you have improved the working conditions of your employees?
Here, all these actions greatly affect your reputation, but they are not always immediately noticeable in monetary terms.
How to tell, then, whether such a campaign is producing a good ROI?
Listening to the network is basic to understanding whether an investment can yield appreciable results. But to hit the mark, you need to provide this before you launch a campaign or make a major business decision!
With an in-depthmarket andcompetitor analysis, you will be able to understand in advance what actions might produce an ROI in line with your goals, even in the long run.
Through social listening and careful network monitoring, you can leverage the data produced directly from people to understand how to develop your strategies.
In conclusion
Our market research agency can be the key to ensuring that your future decisions are planned based on up-to-date data and guarantee a certain ROI.
At Central Marketing Intelligence, we have an established method that will enable you to get all the information you need to better plan your moves.
Contact us now for a consultation!
