When you’re running a business, you need to know how to track your progress. If you don’t know what success looks like - in objective, quantifiable figures - then you can never know if you’ve achieved it. Failure’s different: if your business fails, you’ll know about it, whereas if you’re not tracking your success in the ways then you’ll effectively never achieve it.
Today we’re taking a look at one of the most important metrics you can use to measure the success of any project: ROI (Return on investment). This is a means for you to judge if you’ve successfully launched a product, opened a new store, or any other project you engage on as well assess the performance of consultants or agencies you hire. There’s almost no part of your business you can’t look at through the lens of ROI: brand awareness, traditionally thought of as an abstract, almost magical quality, can be quantified when looked at in this way.
What is ROI?
ROI stands for Return on Investment - the gain or loss generated on a project compared with the amount of money invested in that project. Rather than expressing it as a raw number, you can assess the relative success of different projects better if you understand ROI as a ratio or percentage. A project that attains a 300% ROI is more successful in objective terms than one that makes more money, but due to its greater costs achieves a lower return on investment.
Finding the ROI of a given project is a relatively simple exercise: you need to add up all the costs, the resources invested in your project and similarly add up the sum of all the revenue you can attribute to that project. If you divide the revenue by the investment and multiply by 100 you have the ROI expressed as a percentage.
While the actual calculation is relatively straightforward, you might notice some challenges implicit in that description.
Identifying and costing all the resources that come under the banner of your investment into a project can be difficult - as can attributing all the revenue that results.
It’s easier for some aspects of your business than others: marketing, for example, is often (and arguably should be) assessed in terms of ROI. If you’re using consultants or a specialist marketing agency, it’s easy to identify the investment you’re making in your marketing: it arrives in an invoice each month. Similarly, it’s easier to track the outcome of digital ads, with cookies tracking the browser’s subsequent journey through the internet and telling you which purchases can be ascribed to the direct persuasion of your adverts.