ROI Basics for Your Small Business
Think about how you spend money on your business. Are you doing so in hopes of achieving growth?
While spending money can bring positive results, it can turn bad soon enough if you are not tracking your return on investment (ROI) – commonly defined as your net profit divided by your total assets.
As a business owner, you must keep tabs on the following:
- What you are spending your money on
- How much you are spending
- What you are getting in return for every dollar you put out
When you track the ROI associated with every expense, it is easier to determine where you should spend your money in the future. Here are three ideas to consider:
- Marketing. Some marketing strategies will have a high ROI, while others will flop around and lose money. You should experiment with many options, focusing on the return that each one brings.
- New employees. This is one of your biggest expenses, but at the same time every employee has the ability to bring something unique to your company. Since the cost of hiring an employee can be high, you must make sure the ROI is worthwhile.
- Equipment. To achieve growth, some companies require new equipment. Before you make a purchase, calculate the potential ROI. This will give you a better idea of whether or not you should move forward at the present time.
No two companies are the same. No two owners have the same business plan and strategy. The way you spend money is unique to your organization, and is based on your beliefs, industry, and goals. Even with all that in mind, nothing changes the fact that you must track the return on investment associated with every dollar you spend. By doing so, you will have a better idea of where you should spend your money now and in the future.