Get More Money! 4 Hacks to Increase Return on Investment (ROI)
Blog Categories:
Published:
April 18, 2023
Reading Time:
6 minutes
Let's talk about something that's on every business owner's mind: profits!
We all know that running a business takes investment, and in order to make a profit, you need to make sure you're getting a return on that investment. That's where Return on Investment or ROI comes into play.
We will discuss what exactly ROI is in this article. In fact, this is going to be a very analytical article. In particular, we will first give you the mathematical formula for calculating ROI and then talk about the top 4 ways to get the numbers right.
So, do you want to learn how to increase your ROI? Then let's dive into it.
We all know that running a business takes investment, and in order to make a profit, you need to make sure you're getting a return on that investment. That's where Return on Investment or ROI comes into play.
We will discuss what exactly ROI is in this article. In fact, this is going to be a very analytical article. In particular, we will first give you the mathematical formula for calculating ROI and then talk about the top 4 ways to get the numbers right.
So, do you want to learn how to increase your ROI? Then let's dive into it.
What Is Return on Investment (ROI)?
Letâs face it, the number one reason why people get into business is financial gains AKA profits! However, hereâs the thing: to make a profit, you may have to invest money into your business first. And then, you must ensure that you make more money than you invest in order to be profitable. This is when the concept of Return on Investment or ROI needs to be understood.
ROI is the measure of profitability in business. To calculate ROI, you could use the following formula:
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
Here, Gain from Investment refers to the profit you make by investing money into your business, or a particular task in business, such as marketing, buying new equipment, or hiring talented professionals. Cost of Investment, as the name suggests, refers to the cost you incur due to your investment. Now, to express ROI as a percentage, the result of the aforementioned formula can be multiplied by 100 percent.
Letâs take an example to understand this better.
ROI is the measure of profitability in business. To calculate ROI, you could use the following formula:
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
Here, Gain from Investment refers to the profit you make by investing money into your business, or a particular task in business, such as marketing, buying new equipment, or hiring talented professionals. Cost of Investment, as the name suggests, refers to the cost you incur due to your investment. Now, to express ROI as a percentage, the result of the aforementioned formula can be multiplied by 100 percent.
Letâs take an example to understand this better.
KEY TAKEAWAYS
- ROI is a measure of profitability in business and is calculated using the following formula: ROI = (Gain from Investment - Cost of Investment) / Cost of Investment.
- Increasing the gain from investment and decreasing the cost of investment can increase ROI.
- Focusing on customer retention can lead to increased revenue and therefore, a higher ROI.
- Creating a list of activities that generate an increased ROI for your business is crucial, as what works for one business may not work for another.
- Upselling and cross-selling, search engine optimization, trade shows, inbound marketing, and content marketing are some activities that can lead to a high ROI.
4 Ways to Increase Return on Investment (ROI)
Now that you know what ROI is and how exactly to calculate it, letâs discuss the top 4 ways to get a huge bang for your buck.
Okay, now letâs talk numbers. You see, in order to increase ROI to the maximum, you need to increase Gain from Investment as much as you can and decrease the Cost of Investment as low as you can. Now, one way to increase gains or profits is by raising the price. According to McKinsey, even a minor 1% increase in price could result in a whopping 8.7% profit. The same report mentioned that around 30% of pricing decisions that companies make are not effective. Sad, isnât it? Millions of dollars in lost revenue just because companies donât set the highest possible price.
So, how to set the price right? Well, there are several ways to do it. But if youâre short on time and want to get things done right within the first attempt, just hire a pricing consultant. Thankfully, these experts are out there and can help you with your pricing strategy. Whether itâs dynamic pricing, pricing for SaaS or other software products, or B2B pricing, a pricing consultant can ensure that you donât leave any money on the table.
If you want to find out more about how pricing consultants work, check out this page: pricing consultant.
1. Set the price right
Think about the ROI formula we mentioned above once again: ROI = (Gain from Investment - Cost of Investment) / Cost of Investment.Okay, now letâs talk numbers. You see, in order to increase ROI to the maximum, you need to increase Gain from Investment as much as you can and decrease the Cost of Investment as low as you can. Now, one way to increase gains or profits is by raising the price. According to McKinsey, even a minor 1% increase in price could result in a whopping 8.7% profit. The same report mentioned that around 30% of pricing decisions that companies make are not effective. Sad, isnât it? Millions of dollars in lost revenue just because companies donât set the highest possible price.
So, how to set the price right? Well, there are several ways to do it. But if youâre short on time and want to get things done right within the first attempt, just hire a pricing consultant. Thankfully, these experts are out there and can help you with your pricing strategy. Whether itâs dynamic pricing, pricing for SaaS or other software products, or B2B pricing, a pricing consultant can ensure that you donât leave any money on the table.
If you want to find out more about how pricing consultants work, check out this page: pricing consultant.
2. Focus on customer retention
Sometimes, businesses with good investments, excellent marketing strategies and talented team members fail. And sometimes, businesses that have no funding and a mediocre strategy become profitable. Why is that? Well, it all depends on the customers. Itâs simple: businesses that have customers will keep on generating revenue, regardless of their product or marketing strategy. So, you must ensure that you have enough customers to generate an increased ROI at any given time.
According to HubSpot, increasing customer retention by 5% can result in a 25-95% increase in revenue. Needless to say, increased revenue is likely to result in a higher ROI. Now, increasing customer retention is a whole different topic in itself on which we can write a whole book. But here are some quick tips to increase customer retention:
According to HubSpot, increasing customer retention by 5% can result in a 25-95% increase in revenue. Needless to say, increased revenue is likely to result in a higher ROI. Now, increasing customer retention is a whole different topic in itself on which we can write a whole book. But here are some quick tips to increase customer retention:
- Loyalty programs: Give them incentives to come back by offering discounts and rewards.
- Improve customer experience: Use digital transformation to make your customersâ experience smooth and hassle-free.
- Stay in touch: Create social media accounts for your business and develop email marketing campaigns to stay on their minds.
- Hire customer retention consultants: A consultant can map the entire customer lifecycle and create a retention strategy that is far superior to the usual. They can also help with performance benchmarking and product portfolio expansion.
3. Create a list of activities that generate an increased ROI
Every business is different. An activity that can generate an increased ROI for a competitor may not necessarily be the best for you. Thatâs why itâs crucial that you evaluate your business goals and capabilities and only invest in projects that are likely to increase ROI. Letâs consider some examples of high ROI activities.- Upselling and cross-selling: Why sell them only one product when you can add another one to the shopping cart? Upselling and cross-selling are time-tested ways of increasing revenue from existing customers. For example, Apple doesnât just sell an iPhoneâit also sells accessories such as AirPods, AirTags, and silicone cases.
- Search engine optimization: This is particularly beneficial if youâre targeting a local audience. For example, if thereâs an ice cream parlor in Manhattan, New York, it could benefit a lot by having the right keywords on its website. So, if someone looks for âice cream near Manhattanâ on Google, their name could be brought to the first page through SEO.
- Inbound marketing: Inbound marketing involves attracting customers through content creation and experiences. Everything from email campaigns to publishing online content can be included in inbound marketing. So, roll up your sleeves, and 10X your social media, video content, blogging, and email marketing game.
Apart from these, you could also try participating in trade shows, hosting events, speaking at conferences, offering free trials, and creating public relations campaigns to generate more revenue. Once you find out the activities that bring you more money than you invest, double down on them.
4. Streamline operations
So much money can be saved if companies figure out a way to make operations more cost-efficient and smoother. It does require a lot of thinking and strategizing, but streamlining operations will pay for itself in the future.So, how to streamline operations? To begin with, you could focus on automating as many manual processes as possible. This approach can provide two benefits. Firstly, it reduces the chance of human errors and omissions. Secondly, it saves money by eliminating the need to hire additional staff.
And if youâre into manufacturing any type of product, you could implement lean manufacturing. This is a process that can help you cut waste and make operations more efficient. But to truly incorporate the lean methodology into your business, you may need the help of a lean operations consultant.
A lean operations consultant can assist you in many ways. For example, they can strategically reorganize your process by introducing new communication channels and decision-making. This will create an environment for new gradual changes. Waste reduction is another specialty of these consultants. They can optimize your companyâs inventories and component usage to ensure that wastage remains at the minimum. Besides this, they can also create a cultural change and execute lean projects to ensure that your operations are streamlined and efficient.
Conclusion
And that brings us to the end of this article. Remember, there are many ways to increase ROI apart from the four that we mentioned here. Ultimately, it depends on the type of business you run, the number of years your business has existed, your customer base, and the industry youâre in, to name a few. As a rule of thumbââWhen in doubt, ask.â
So, if you need help with increasing your ROI, we have thousands of highly experienced and intelligent consultants in our talent pool. Here at Consultport, we can connect you with a senior freelance consultant within days. If that sounds good, get in touch with us now.
So, if you need help with increasing your ROI, we have thousands of highly experienced and intelligent consultants in our talent pool. Here at Consultport, we can connect you with a senior freelance consultant within days. If that sounds good, get in touch with us now.
