Busting Buzzwords: What is ROI and what does it mean for my SME?

It’s near enough impossible to read a digital marketing blog post without coming across the buzzword ‘ROI’. This acronym is thrown around constantly – we’re even guilty of doing it here from time to time. However, let’s face it, buzzwords are not helpful. Nobody really knows what they mean but they feel obligated to chuck them into conversations. This creates even more confusion but makes people feel like digital marketing experts. That’s why we’ve decided to start busting commonly used buzzwords, like ROI. It’s time to strip the buzzwords down to basics and find out what they actually mean for you and your SME.

What is ROI?

To put it simply, ROI stands for return on investment. But what is return on investment? Well, have you ever heard of the phrase ‘you have to spend money to make money’? That’s essential ROI in a nutshell. After you’ve invested in something for your SME, the money you make directly from this investment is your return on investment. For example, if you paid £500 for an advert in a magazine, then someone sees that advert and spends £1,000 on your product or services this would give you a return on investment of £500. In short, you spent £500, you then gained £1,000 however then you subtract your original spend from the money gained.

Why is ROI important to my SME?

Return on investment is a huge determining factor as to whether or not your SME is successful. Having a positive return on investment means that your business is making money, a negative return on investment means that your business is losing money. Making money is obviously the aim of your SME, if you’re not doing this it’s pretty hard to have a sustainable business. It’s really as simple as that.

How can I use it in my day-to-day business?

You can apply the principles of ROI to every aspect of your business, from marketing and sales to customer service and accounting. However it’s important to remember that not every aspect of your business will maintain a positive return on investment. For instance you have to pay a bookkeeper to do your accounts but this will never bring in extra income for your business. To counteract unavoidable expenses that bring no return, it’s important that your other business operations cover the costs for this. Of course, this is all built upon best business practice.

Can I apply it to my digital marketing strategies?

Like we said above you can apply the principles of ROI to all aspects of your SME. Implementing your new found knowledge of return on investment to your digital marketing strategies actually works particularly well. As digital marketing is usually something you have to directly invest in and will hopefully bring you direct business, this means a return on investment can easily be calculated. However, before you even start, don’t just calculate the ROI of your digital marketing campaigns, design your campaigns with ROI in mind.

How can I increase my ROI as an SME?

There’s no sure way to increase your return on investment. However there are a few easy ways in which you can make sure your SME is not in negative ROI. Firstly, don’t spend money unnecessarily, you shouldn’t invest a lot of capital in something that is not going to bring you any return or not be essential for your business. Additionally, try and design your business strategies around ROI. If you invest a certain amount of budget in an activity, is it likely you’re going to gain at least that same amount back? It can be a bit of a gamble and you have to take a few risks to really gain a highly positive return on investment, after all nothing in business is certain.

Now you have a better understanding of ROI are you motivated to apply it to your SME for some serious business results? Of course, remember that these are just general tips and that how you should use marketing strategies is very dependent on what industry you are in as well as your target audience.

As always, if you need any further assistance with any of your digital marketing projects then please don’t hesitate to contact us either here or on LinkedIn or Twitter. Until then, happy marketing!