ROI, or Return on Investment, is often brought up by marketers and advertisers as the sole reason you should use their services. I have heard it 100 times and used it many times myself to help close a reluctant client: “If you give me $1 and I give you $10, why wouldn’t you purchase today?”
As a sales tactic, this works.
But, let’s throw some Wesleyan realism on our rather idyllic pain avoidance.
ROI Is Not Magic
When most people think magic, they think of having tremendous power with little energy expended. In other words, I spend $1 and get $10 back every time.
The problem with this logic is that it is not guaranteed to work every time. Sometimes it does.
If you want to test the universal applicability for any statistics, apply it to a much larger sample. In this case, if I spend $1 and get $10 back, then universal applicability works for $1,000,000,000,000 as well. All you have to do to get to $1 Trillion dollars would be to spend $1 on ads and reinvest the difference a mere 12 times.
So, you cannot say that a 10 times ROI is applicable in anything except the most specific, not repeatable situations.
The rest of the time, a great ROI is to beat the average ROI of the stock market, where you give me $1 and I give you back $1.15.
Not quite as easy to sell though!
Return on Marketing vs Advertising
This is where it gets even more difficult for most small business owners. There are so many variables that go into your costs (yes, Algebra has real-life applications) that tracking returns on your investments is usually too high level to give you any good information.
If you spend 100 dollars on a Google ad campaign right now, how will you know whether the Google ads are bringing you income or whether it was something else entirely?
Tracking marketing ROI requires much more than just call tracking or click tracking.
Sales people like to talk about the ROI from an advertising campaign using social media or a search engine because it is easily trackable. Without a deep understanding of the entire sales and marketing process, you will not be able to determine whether that money was actually money well spent.
Besides tracking, some advertising campaigns are impossible to track but still provide a return on investment. I read a recent article by a marketing agency that was preparing to open in a new city and they spent some money putting up billboards of a cute picture of a dog with some catchy tagline. It was cute branding but impossible to track.
One of the team members was riding on public transit and talked to some people (something you’ll notice about marketers who are also salespeople, we talk a lot) and they had pictures of the billboard on their phones.
That kind of response is nearly impossible to track.
But, it is probably worth something, right?
Focus on Your Customers, Track When You are Able
The best way to get a return on any investment in business is to focus on your customers. This is the core attribute of a market mindset, and it can produce that intangible and untrackable growth which is necessary for any business to succeed.
Once you have your core people in mind, start tracking everything you are able to track.
I am reading John Adams by David McCollough and when John Adams went to France to help negotiate the alliance that helped the United States win independence from Great Britain, it was a mess!
They were not tracking costs, they were in debt, the original hardworking entrepreneur (Ben Franklin) was indolently sleeping in and playing chess.
And yet, they achieved what they set out to do.
Likewise, your business may be a mess right now. You need to focus on getting better by increments and working to communicate with your people so that you keep your current customers happy and get more customers.
What About ROI?
Now that we have covered how difficult ROI is to truly see and how it is not the end metric of a business, ROI is a useful tool to plan budgeting overall and advertising spend specifically.
It is simple to track in a higher level.
Look at how many customers are responding to a campaign, calculate what their value is, and divide your budget item for that campaign by the income you brought in.
If you think that wasn’t simple and is currently clear as mud, why don’t we hop on the phone to talk about your marketing costs for your business?
Because the best way to make something simple is to ask for help.