Understanding ROI

Understanding ROI

So what is ROI? ROI means Return on Investment and what does ROI mean when it comes to your marketing and business? Everything!

Having a complete understanding of ROI when it comes to your marketing is crucial to running a successful business. Simply put, you need to know where your marketing dollars are working and where they are not. This is done by measuring and testing. Your marketing can be tracked by various means depending on the type of advert you’re running. You should be able to keep track of this in your CRM as well.

Once you have this data, you can invest in the areas that are giving you a return and dump the ones that are a loss. Remember, you need data to back this up. You just can’t say “this doesn’t work.” Do you have the numbers to back it up?

Why do I bring this up? Because some business owners will say that certain marketing does not work and they give up on it too quickly. Don’t get me wrong, sometimes that is the case but many times, they don’t have a full grasp on ROI. Let me give you an example.

Let’s say you invested $2000 in advertising this month and it only produced $1000 in revenue. Not so good right? You lost money, right? Well it depends on how you look at ROI.

In terms of money lost right now, yes you would be correct. But we need to ask what is the ROI when it comes to the long-term customer?

For this example let’s say we are in the HVAC business and let us say that our average client brings in $1000 in revenue a year. For averages sake, we will say this customer stays with you for five years. That said, your customer over five years has brought in $5000.

So out of that $5000, how much money could you spend to acquire one new customer and still make a great profit? You could spend up to a couple thousand dollars to acquire just one customer and still do great. So always look and ask yourself what is the value of the long-term customer?

Many contractors are only looking at what they can do today. What sales can they get today? Once they get the customer, do the job, they move on to the next. They completely forget about them. Turn that customer into a client. Create a lifetime relationship with the client and your profits will soar.

In the relation of marketing, they view it the same way. What can I get today? Instead of looking at it as, what can I get tomorrow, the next day and so on. Think long-term and maximize your investment. I can tell you most of your competition is not thinking this way. It’s one way you can be one step ahead of your competition. To win the race, you only have to win by one step.

More on this later.

To your success ~ James Brush

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