Return on investment is one of those mysterious terms for first-time business owners that never quite seems to mean what you want it to. How do you measure ROI? What’s a good ROI percentage?
In reality, ROI means more than just profit. It also means how effectively you managed to cut down on operating costs, and it measures how effective your marketing campaign has been in getting customers through your door.
According to the Houston Chronicle, small businesses actually benefit more from calculating ROI than Fortune 500 corporations because of how limited their resources are, especially in the beginning.
To find out the return on your money, t’s just a simple math equation, and anything over 0 percent is good. A robust 7 to 10 percent is excellent. Getting there is not so simple, because you have to take a look at the big picture.
1. Use Your Analytics
Most small businesses have some sort of analytics program set up for their website, but not all of them use it to the extent they should. When you’re building your site, make sure you have included a contact page and that you’re tracking your visitors and what they do.
If you offer eCommerce transactions, analytics are a must. You need to know the average price per transaction, value per visit, and how many customers return, among other things that Google Analytics or a similar program can help you with.
It’s easier to tell exactly how much money you’re making, but it’s also easier to tell what’s working on your site and where the money for improvements should go. Don’t skip offline analytics, either. Coupons, surveys, and merely asking your customers where they heard about you are things that go a long way to finding out where you should be focusing your time and money.
2. Master Social Media
According to Forbes Magazine, over 50 percent of marketers say figuring out social media ROI is their biggest frustration. Facebook, Twitter, and other social media sites are increasingly vital to small business success, but how do you put a dollar sign on them?
Using the right conversion measurement software can help you find out who is clicking on your ads, but the uses of social media are much broader than just pay-per-click opportunities.
Every Facebook like is observed by the friends of the user who clicked the like button, meaning even one simple interaction can potentially reach hundreds of people. You can also compare the cost of your pay-per-click ads against the number of website visitors you get from Facebook and Twitter using your site analytics in order to find out the real ROI.
3. Hire Virtual Staff
In your first six months of business, you may be a party of one, but eventually you’re going to need help in the form of employees. Resist jumping ahead into purchasing an expensive office space, furniture, and equipment.
You may be surprised how much talent is available online, and workers who are willing to telecommute will not only save you operating costs, they will open you up to a much larger pool of applicants.
You can also take advantage of the new trend towards crowdfunding. In business, this doesn’t have to mean asking for donations to fund your company, it can mean soliciting experts for reduced fees or even on a volunteer basis.
If you’re worried you can’t afford to hire web designers or marketers to get your business off the ground, creative methods of recruiting can yield a profitable return for very little invested.
4. Try Bartering
Beyond crowdfunding alone, there has been a rise in small business bartering, and for many new companies, it’s one of the best ways to encourage growth. The Washington Post gives several examples of how the barter system has worked to the advantage of growing businesses, including how publishing company Round Table traded a graphic novel for a website design from a top company – a trade they later valued at $50,000.
Bartering can be as simple as offering workers with accounting degrees free services for managing your books, or even the use of your vacation home. Building contacts is one of the most important parts of your first year in business, and successfully trading services with these contacts is just taking it one step further.
You don’t have to be mystified by ROI in the long run, because you’ll know how well your business is working. Still, putting a dollar sign on your success is helpful, and so is knowing where that success is coming from.
If you can manage to successfully track your profit while successfully trimming your business costs, you’ll have mastered the basics of growing your company. Remember, the goal is to make two dollars for every dollar you spend, but it’s also to be in it for the long haul.
Post contributed by Pam Rankin, a business blogger. You can see her other articles on business investment at Twitter @PamRWrites.