What Does ROI Really Mean?
ROI might be one of the most popular business acronyms in recent memory, and business to business, the definition remains the same: return on investment. No matter the industry, leaders are concerned with ROI and ensuring that every dollar spent is used in the best interest of the organization. But in practice, what does ROI really mean? Let’s discuss!
What is ROI?
At the most basic level, ROI is the simple calculation of how much money is spent, and how much money is made from the expenditure.
For a simple example, imagine that you bought a lamp at a garage sale for $10 and then sold it through Facebook Marketplace for $20. Your return on investment is $10, or 100%, as that’s the difference between the amount of money you spent, and the amount of money you earned in the sale. In an enterprise organization, this calculation becomes more complex, but the fundamental equation is the same; how much money was spent – through marketing and lead acquisition practices that led the person or organization to become a customer – and how much money is made from the sale after all the important players in that process are paid.
There can also be considerations made when calculating ROI that aren’t immediately apparent, think of these as soft numbers. For example, maybe the purchase of a new organization tool led employees to be happier at work and lower the amount of turnover. The ROI may upfront look low, as that tool doesn’t directly lead to the signing of new contracts, but long term it saved the business from losing valuable staff members, and the costs needed to hire new team members.
Who’s Responsibility is ROI?
In a sense, every member of an organization is responsible for driving ROI, but more often than not it comes down to a few specific teams.
Sales is commonly the main department tasked with driving and reporting on ROI. They’re on the frontlines with leads every day, leading pitches and demos that convert curious eyes to committed customers. Sales departments also tend to adhere to commission-based salaries, which connect a clear line between the revenue they bring in and their take-home paycheques.
Marketing departments are also tightly connected with driving ROI, as they lead the initiatives that bring leads to the business. These teams tend to focus their attention on campaigns that they know have a good ROI, based on previous data and analytics accessible to them. The rise of digital marketing has made this even easier to manage, as more data than ever before is available to them. By knowing which campaigns are driving leads, they’re able to drive a strong ROI.
Product departments are another key ROI driver. As the teams responsible for creating, developing and enhancing the product, they’re tasked to grow upon the parts of the product that encourage leads to become customers. They are also in charge of identifying product improvement opportunities to retain existing customers. By working with sales and marketing teams, they’re able to understand exactly which features are the most interesting to potential customers, and what customers are asking for in future releases. By working on these tasks, they’re able to provide a strong ROI, as happy customers maintain their contracts and keep revenue flowing.
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