Haaaaave you met ROI?

Yes, really haaaaave you met ROI?

If you're a How I Met Your Mother fan you may be familiar with this saying (substitute ROI for Ted).

Just as Ted is Barney's best friend in How I Met Your Mother, ROI is your best friend in marketing. ROI is your Return On Investment.

If you don't have ROI involved in every aspect of your marketing then you are simply throwing your precious dollars and/or time away.

ROI doesn't have to always be immediately financial. Your ROI can also provide an indirect financial return. For example, ROI may be an increase in brand awareness, a stronger relationship with your clients, better engagement with your community, better SEO ratings online. All of which will lead to a better financial outcome for your business.

Or ROI may be a direct financial return through marketing activities that provide an immediate revenue boost. For example, promoting a sale such as a Spring into Spring sale - clearing everything from Winter is an example of a marketing activity that may provide an immediate and direct financial return. 

A cautionary tale about holding a sale

Caution - sale
Caution - sale
Caution - sale

If you do hold a sale it is important to understand if you do reduce the price of your products or services, how much more do you need to sell to make the same profit margin (let alone increase it).

For example, if your gross margin (pre-sale) is 50{84c574be8ac0dd5c27bd8e7a2d01a7d12eae6e43ff9382875d4c011f1ac6f31b} and you decide to have a 20{84c574be8ac0dd5c27bd8e7a2d01a7d12eae6e43ff9382875d4c011f1ac6f31b} off sale, you need to sell 67{84c574be8ac0dd5c27bd8e7a2d01a7d12eae6e43ff9382875d4c011f1ac6f31b} more of your product to make exactly the same profit. Actually, if you have additional expenses in promoting your sale then your probably need to sell more again!!

While, there are other considerations to take into account, like how long you have had the stock on hand, it is certainly a worthwhile exercise to crunch your numbers before having a sale - and make sure you have ROI involved.

If you have promote a sale but end up making less money, that is not meeting ROI (it's his evil twin brother LOI - loss on investment). 

The flip side

Then there's the flip side of increasing your pricing. Many people are scared of increasing their pricing, fearing they will lose customers - a valid fear. However if you use the same principles applied to discounting (reversed) you can actually achieve a better ROI with less customers. 

Using the same example, if your gross margin is currently 50{84c574be8ac0dd5c27bd8e7a2d01a7d12eae6e43ff9382875d4c011f1ac6f31b} and you increase your price by 20{84c574be8ac0dd5c27bd8e7a2d01a7d12eae6e43ff9382875d4c011f1ac6f31b} your sales volume can reduce by 29{84c574be8ac0dd5c27bd8e7a2d01a7d12eae6e43ff9382875d4c011f1ac6f31b} and you still make the same amount of profit. Note: I'm not suggesting increasing your pricing by 20{84c574be8ac0dd5c27bd8e7a2d01a7d12eae6e43ff9382875d4c011f1ac6f31b} in one hit (that's a pretty large increase). 

To help you with understanding ROI when it comes to pricing, here is a handy table that shows the increase in sales volume to make the same margin, if you discount. It also includes how much you can decrease your sales volume by and make the same margin if you increase your prices. 

Make friends with ROI

Invite him along to all your marketing strategies and activities. And if you can't measure what ROI will deliver, then question whether that strategy is actually worthwhile pursuing.

So... haaaaave you met ROI?

Disclaimer: This post includes general examples.  As with anything financial, it is important you seek advice from a qualified expert who understands your personal circumstances.

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