If you’ve been running a business for a while, you know how crucial it is to stay profitable. But just because you’re turning a profit, that doesn’t mean you’re generating ROI from all your investments.
It’s possible to maintain a positive cash flow and still waste money on items and procedures that don’t contribute to the success of your outfit. Here’s how to tell if something is definitely providing a return on your investment.
1. It increases productivity
Productivity contributes to profitability. Any time something raises productivity, you can be sure it’s providing you with ROI.
For example, Cetaris a popular fleet management software, empowers maintenance teams to boost their ROI by increasing productivity, identifying warranty reimbursements, and keeping inventory accurate, among other services. When productivity increases, tasks are completed faster and more efficiently, which supports your bottom line.
If you’re paying for software that you know is amplifying your team’s productivity, it’s probably worth keeping unless you can find a program that does a better job. Keep in mind that software can enhance ROI beyond just making your team more productive.
2. It contributes to your revenue
If a tool brings in greater cash flow for your business, it’s clearly supplying ROI. But that’s only the case if it generates more money than it costs, though it might entail an indirect return.
For example, let’s say you pay $300/month for your CRM and email marketing program. You might not generate a full $300/month from your emails directly, but your email sequences contribute to customer loyalty and increase brand awareness; plus, you’re potentially nurturing people toward making a purchase later on.
If your business is generating, say, $10,000 a month in revenue, and your emails are influencing purchases, then you might well be generating adequate ROI. However, if you can sell your products at the same rate without an email list, then your email marketing program cannot be credited with creating acceptable ROI.
3. It makes your customers or clients happy
How much are satisfied customers worth to you? Statistics show that if you can increase customer loyalty by just 5%, you can increase profits by 25-95%.
That’s an admittedly broad range, but it’s significant in any case. Acquiring new customers also costs about five times more than retaining existing ones, so it’s typically more profitable to make sure your current customers or clients are satisfied.
When you’re invested in a system, process, or tool that keeps your customers measurably happy, you can be certain you have positive ROI. The bottom line is that satisfied customers spend more money, write positive reviews, and tell their friends and family about your business. They are an asset, and investing in their satisfaction will give you a solid return.
4. It reduces your expenses in a meaningful way
Expenses are unavoidable of course, but if you’re creative, you can lower them substantially. You don’t always have to acquire the latest and greatest tech tools, but sometimes the pricey ones can serve your business.
Let’s say you’re paying a monthly fee for a tool that is supposed to save money. If you’re saving more than you’re paying for the tool, then you’ve got a positive return on investment.
Even if the tool costs more than you’re saving, it might be preventing worse losses. Only you can make that determination. For instance, if you’d normally be losing $500/month, and a given tool costs $100/month and helps you save $300/month, your net loss is $300/month, which is less than if you didn’t use the tool.
There are many other ways to reduce expenses, but if you have a tool that saves more money than any other could, or you would bleed more funds without it, then it’s bringing you ROI.
5. It provides you with valuable insight
One of the more indirect returns relates to investments in knowledge, education, information, or expertise. For example, you can hire someone to assess your cybersecurity strategy and identify vulnerabilities and areas where there’s room for improvement.
You might require upgraded equipment, new software, or a completely new security policy for your company. The outsider’s expertise won’t bring in money, but cash isn’t the only valuable return.
Consulting with a cybersecurity expert will help you secure your operations so you will avoid costly regulatory fines if you experience a data breach, for one thing. It will also reduce the odds you’ll lose valuable data in the event of a ransomware attack.
If you recall the fact that most businesses fold within six months of such an attack, that expertise is priceless.
ROI is not always financial
Everything you invest in for your firm should provide a return, whether it’s revenue, productivity, expertise, or security. If you can’t locate any ROI, you’re wasting your time and money.