What is ROI?: Jedi Return on investment methods for more profit

What is ROI?: Jedi Return on investment methods for more profit: by Jason Li 2013 ©

Are you a leader in your business... or a director?

Do you want to direct your business to more profits?...

Better conversion rates from marketing communication campaigns such as advertising, web site revamps, brochures, rebranding or email campaigns?...

Then here are some nifty ways to gain a better return on investment from your marketing communications spend.

How to calculate return on investment (ROI)

Why delay, let’s go through how to calculate return on investment

(return-capital)/capital) x 100%        = rate of return

(£110 - £100)/ (£100) x 100%        = 10%

So now you know what return on investment (ROI) is, so how you can use it to improve your business?

Rate of Return

Everytime you do something in your business, do you know the expected and actual rates of return?

Let’s say you do a promotion such as a 100 leaflets that are door dropped in your local area... what numbers are you expecting convert into sales, what numbers did you really get, how did you get to these estimates in the first place?

When you spend £2,000 on a website revamp, what rates of return are you expecting? Sure, the web site really looks great. Most web designers truly are fantastic visual artists. But I’m asking you as the boss and leader the hard question... what rate of return were you expecting from your £2,000 investment?

If you employ sales people, again you will have expected rates of return?

Add up all your sales efforts and marketing communication campaigns costs over the year and be truthful, what rates of return are you expecting?

Do your sales and marketing campaigns improve your turnover; improve profit margins and overall profit?

If the rates of return are low, like 500 cold calls to an order, even though you are certain you are targeting the correct target market, could it possibly be because the previous investment in developing your service and product was more than a year ago; so it means your offer is gradually not creating enough value for your target market TODAY?

When was the last time you added more value? How did it affect your rates of return after you improved the offer? If you can’t think of how to fine tune your product and service offer, have a look at the Goose Bump Effect ebook preview.

In fact NO... read on... you don’t deserve a free preview. You still believe that it’s not the product or service or your total offer that needs to improve. In fact, you want to spend more money on branding because it makes your ego feeeeeel guuud. So carry on reading.

Customer’s rate of return

So now you understand your own rate of return measurements.

In fact... it is almost certain you never purchased anything without trying to really estimate what you got in return.

So if you bought 1000 sales leads data for £100, you expected after all your expenses possibly £500 profit.

If you buy a nicer car, you want the hot guys/girls on the pavement to squint to see you through the window as you pull up at the lights. (Now that’s ROI because you want to be noticed by fit ones; yeah.)

And that way, my friend, is pretty much how your customers are thinking.

Your customers are trying to work out their rate of return from your product and service. (How many lovely people they can attract.)

Yes, you want the sale, more customers, more conversions, more revenue and more profit.

Yes, the customer knows you are keen for them to sign the papers, type in their card details, or send a purchase order... don’t you think they’ve ever been sold to in their life before?

But if you want better conversion rates, more money, more profit, less wastage of leads, to reduce the number of prospective customers who sign with competitors, and reduce the number of interested prospects with money to spend walking away and looking at other products and services to improve their business and lives... now is your chance.

“What sold well last year or yesterday might not sell as well tomorrow or next year.”

Look here dude. Either you keep your head in the sand, spend more on advertising, buying more lead data to give your demoralised and commission famished sales staff; get more stress, get more wrinkles, watch friends and family do better... Or, make that change to help your clients enjoy a product or service that is obviously of even better value than before.

Did these clients get a good enough rate of return on investment?

Marks and Spencer

I co-created a World Cup football board game as a freelancer that sold in over 200 Marks and Spencer stores. This included the research and game design to ensure it was in line with the demand of the market.

M & S wanted an exclusive football product to attract customers to their retail stores only.

On the Ball sold 10,000 copies in year one and was a top five selling product.

Competitors included: The Apprentice, Deal or No Deal, The Price is Right and Countdown.

No money was spent on TV advertising to promote the game, you could only know about it if you noticed it in the store. I had to rely on the methods in The Goose Bump Effect ebook to ensure that it hit the spot in terms of what buyers are looking to pay for as it sat amongst many big brand name board games.

My game only had one shot of being: noticed, picked up, the pictures and copy on the back read by the prospective customer... then it was either a) put back on the shelf or b) put in the basket. That my friend is the sales cycle. Anything else is delaying that decision of a or b.

Some AIDA magic:   A attention I interest D desire A Action

Boom!

It was positioned as a family game (a big point of difference – again explained in the ebook how to get this dead on to match what the market is demanding) and packed with unique humour and action cards for players to physically carry out fun tasks – no other board game around really offered much in the way like this at the time.

KashFlow

KashFlow was already a leading online accounting software to the small business sector.

Within 3-4 years about 300 accountants were recommending KashFlow to their client base after a launch of an accountant’s portal.

But sales growth had dropped off, whole sales teams would come and go, with new teams built from scratch.

I carried out some research to provide a 2^nd opinion.

To give you a picture, the main competitors included the giant Sage, Xero, Free Agent/Iris, QuickBooks and more.

Leading up to the year before I joined, KashFlow had won awards as a leading accountancy software, but had just missed out recently.

It was fairly obvious to see why.

The first thing is that other software houses upgraded their software much more quickly in the last year or two. The meaningful differences and value gap when compare to competitors was shrinking.

Secondly, when a prospect went on either software provider’s website, you see the same USP’s: easy-to-use, 30 day free trial, monthly payments, real-time... and so on.

How can any consumer choose?

So I developed a marketing plan based on adding value to blow other software houses out of the water. The plan was based on not just doing your accounts quicker, but tasks quicker too.

In case you’re asking, no I’m no technical guy, and was only a facilitator on this one. None of the integrations or upgrades were my direct idea... mainly because I don’t know the tech market.

I verbalised the philosophy that the software can follow as a theme to add value and differentiate.

The upgrades included MailChimp integrations for sending email campaigns from the same database, integration with DropBox, and click a link from the invoice facility to send your customers to your bank so they can pay directly online without you having to chase customers for taking card details. These examples would help the user enjoy more productivity through software automation of tasks. These were clearly outlined to prospective users as a USP for busy entrepreneurs.

Finally, a change to waive the fee charged to accountants for the portal brought about another 300 accountants to start recommending the software to clients within 3-6 months of taking away the fees. It only took five of the accountant’s clients to subscribe to cover the accountant fee. Given the fact that some accountants have several hundred clients, in the long run this would get over the hurdle of accountants worrying about the upfront fee. Once accountants had a client on board, the feedback was almost always good. So this got over a major deal breaker as most accountants would not pay a fee to recommend a software... so taking away this fee worked really well, especially as almost every decent accountancy practice has more than five clients.

Boomerang Couriers

One day as a marketing strategy business advisor I was sent by the enterprise agency to see a lad in Preston who had a courier business, based on volume discounting for pallet collections.

He was struggling, and he was desperate for help as a new business.

After analysis of the competitor landscape verses his business offer we found a very popular post office offer that he could improve on in both how he provided the service and price.

Now he could go on to spend money on advertising such as leaflets and within 6 weeks he had two new part-time staff on shifts handling enquiries and collections.

The ROI on Sales and Promotional Spend when getting marketing strategy right

So the importance of strategic demand marketing is starting to make sense now, huh?

Here’s a story:

Imagine if you just decided to spend thousands on a new brand concept complete with new logo, new company colours with an ingenious new brand concept.

Then your design consultants revamp your website... costing another thousand pounds (potentially).

And so your SEO, keywords and social media are now built around your new brand concept.

Yes, you’ll get some new site visitors, because new brings in adventure seeking types (a segment who constantly look for new).

Some may even buy your product because it hits the spot. Many won’t.

So you spend copious amounts of money on sales staff, telesales, field sales, sales managers and trainers. No-one has a clear cut answer why one month is great and another is not so good.

Can you imagine how much money, anguish and time is wasted in generating revenue using this method?

Compare this to a friend of mine who makes bespoke products. He follows new trends and adjusts to meet demand. Effort and costs are minimal: success and conversion rates are high.

Now picture this story of a tool supplier to artists:

This supplier could argue that because artists want to draw and use different colours, then their biros would meet their needs.

Does that read wrong to you?

(OK, the business will get lucky occasionally and sell a set or biros to complement his pencils or water colour paint pots.)

Yet many businesses operate this way.

That’s why thousands of prospects in your market reject you.

What if the product was adjusted to suit prospects demands more closely?

What would your ROI from sales staff and website conversion or SEO be now?

I’ll leave that to you.

Only you can say if it’s better to be in line with what prospective customers are seriously demanding to purchase.

(Or carry on improving and changing everything else from your desk layouts, to staff, to the type of carrier bags used at exhibition stands, to what the brand stands for... everything but the main product which the customer is paying for.)

The importance of Product ROI

Let’s say your product gets an ROI of 20%.

You spend £100,000 a year on business costs. The service elements to your product/package are also included; such as techies/developers or if you are lawyers then the law team.

And you earn £100,000 annually.

So without any promotional costs added, the product itself gets an ROI of 20%, let’s say from referrals.

So you earn £120,000 annually.

Now you want to promote your business to increase revenue. So you hire SEO, website developers, leaflet and print ad consultants, plus spend on newspaper ad space etc.

If your product is not aligned with demand, it is possible your total ROI on your product will now reduced.

Why?

Total costs go up; cash flow, profit margin and ROI for your product will drop down to almost negligible.

So if you spend £20,000 on promotion, then total costs would be £120,000.

But your additional revenue was only £10,000.

After the adding the additional costs, let’s compare with the increased revenue, say £130,000.

Then your ROI is now just 8.333%

So if you have a tactic of spending more on promotional costs and advertising to bring in more revenue, then this is going to become more inefficient for the business.

 

Can you think of businesses that suffered results like this? Businesses like Woolworths comes to mind.

On the flip side, if your product is what your target market is seriously demanding to buy, then any new promotion to prospects who were not aware of your exceedingly good product will likely buy.

Therefore, your ROI will be higher that the scenario before.

Ultimately

ROI is all about ROI on sales conversion for your product or service.

 

ROI is all about ROI for every product or service in terms of how it has been created to meet demand. If you make it and they don’t buy it, you have no return on your investment.

If you build houses and you get no sale from a viewing... Forget blaming the brochures, the lifestyle pictures and the reps uniform. Why does the HOUSE not meet demand?

No one here set up a business to virtually invest most of their money and time as an ad agency business managing art work and signing off Illustrator files.

No one here originally set up a business in order to go onto spend most of their time thinking about branding rather than filling that gap they saw in the market.

And definitely no one here from a trade started a business because they fancied becoming a cold caller and rejection-proof sales person.

So why neglect the real reason anyone is buying from you?

Are prospective customer’s sales objections about you or really about what your business can offer in terms of value?

If you truly want greater ROI, make sure you concentrate more effort on what you have to offer.

If you care for your target market and offer them exceptional value and differentiate the right way, and the prospective customer knows they will get exceptional ROI, your conversion rates have a better chance of improving.

Final words:

Please share this article if you have a friend who you might think a strategic demand marketing approach could help them.