Watch the video below “Terri Levine explains How To Calculate ROI”
Click below if you prefer to listen to the audio.
ROI is return on investment and if you’re a small business owner, ROI is the most important calculation that you need. You need to make sure you’re calculating ROI and looking at ROI regularly, so that your business can be around long term. Obviously you’re trying to build a profitable business, and you want to be able to sell your products or services long-term.
In order to create a long-term profitable business you must make a lot of decisions regarding how you spend money and how you invest money. You want to make sure that money that you’re spending is well spent and comes back to you. So anytime you’re making a decision on spending money you want to first take a look at the anticipated ROI. If you’re investing in something you want to make sure that you have sat down and calculated the ROI. The basic formula for ROI calculation is identifying all the variables that could affect the outcome of whatever you’re investing in. I recommend you take a look at the investment, the amount of money that you’re investing and what the payback most likely will be, and what you think that payback could or would be. Sometimes it’s easy to determine the payback and sometimes it’s more difficult and it’s a little bit of a gut guess. You do want to make sure that you’re calculating ROI all of the time.
Now, let’s be sure you are calculating ROI without making some of the mistakes that most business owners make. A lot of times mistakes are made due to improper calculations. Sometimes a business owner doesn’t understand the actual amount of an investment. Often they’re not thinking of the amount of time or energy that they need to spend on something. Consider the value of the resources and the time you are investing as well as out of pocket money that’s spent. If you’re a small business owner, divide your return by the number of hours that you’re putting into something, not just the money. Think about your hourly rate and how much time something is taking you away from your work and ability to produce income, too.
Business Start Up
If you’re business start-up, you have more time on your hands but at the same time you typically don’t have more cash, so you’re going to be extremely careful in calculating ROI. You must pay close attention when placing a value on financial numbers. Also I encourage you to pay attention to the amount of time for ROI as well. The ROI formula is the secret of turning ROI calculations into success. This means you need to calculate everything that you invest in. You should calculate (sometimes this will be a guess or gut reaction)what you believe you can achieve by the investment of time, energy, money, creativity, and measuring your results that you’re planning to get back. The investment that you’re planning to get back is critical.
One of the things, I tell all of the business owners that I am a business mentor for, is to check on your ROI regularly. Have a weekly meeting whether it’s with yourself or your team or if you’re a solo-preneur, have it with yourself. If you have more members on your team, have it with your team and look at the key performance indicators and see what the ROI is every single week, that way you’ll never find yourself in a hole.