Return on investment, most commonly referred to by the acronym "ROI," is really a fairly straightforward concept. This holds especially true when it comes to entrepreneurs that are the "jump in and get things done type." Those that aren’t afraid to get their hands dirty (entrepreneurs — you know who you are).
A Few Words About Complex ROI Formulas
Understanding ROI and how it affects your business and profitability is vitally important for small biz entrepreneurs and micro-preneurs. Knowing about all of the formulas that economists and accounting gurus use might not be quite so important. In other words, do you really need to understand:
- Arithmetic return;
- Logarithmic return;
- Continuously compounded return;
- Arithmetic average rate of return;
- Geometric average rate of return;
- Dollar-weighted rate of return;
- And so forth and so on?
The answer is most likely to be a big NO. Now if you’re really into this kind of stuff and want to learn more about it all, you might consider going back to college to take a few refresher courses on the subject. And if your business has gotten to the point where these terms are beginning to surface on a daily basis, then yes — it’s definitely time to become intimately familiar with them (and it’s probably time to hire an expert in-house CFO too)!
But Let’s Get Back Down To Earth For A Minute…
As an entrepreneur, your keen business instinct will tell you when it is time to know more about all this stuff. For now, we’ve just got to solidly grasp the basics, right?
For entrepreneurs, and online business entrepreneurs especially, grasping ROI is fortunately quite simple. For each dollar you spend in your business (the "Investment" or "I" in ROI), you should realize monetary returns (the "R" in ROI) if things are profitable. Clearly the higher the percentage of ROI, the better!
Now it’s also important to understand that in everyday business, ROI can be determined for any individual given marketing campaign or product line or it could be used to describe an overall percentage for your entire group of operations. Many businesspeople throw ROI numbers around left and right — so it is important to understand exactly what they’re discussing before making assumptions.
ROI In Online Marketing
You’re most likely to see ROI used in the business of online marketing when it comes to describing a few different areas, including:
- ROI for Pay-Per-Click (PPC) advertising campaigns;
- ROI for SEO campaigns;
- ROI for a new landing page;
- And even ROI for social media campaigns being carried out.
As an entrepreneur, learning more about ROI and how it affects your day-to-day business and profitability is a wise idea indeed. Just try to avoid becoming so immersed in the details that it becomes a distraction to running and growing your business. After all, maintaining balance is what defines a successful entrepreneur as a leader!
Until Next Time.
George Chaney
President/CEO
SEO King, Inc.
