Definitive Guide to Check Your Business Marketing Strategies Effectiveness
When it comes to the world of business and marketing everyone knows that we have to have a marketing strategy in place to be able to evolve and reach our goals and targets. Months can be spent writing your strategy but ensuring its effectiveness can be hard work. Having the ability to be open-minded when writing your strategy is important and will help further down the line if you ever need to change or adapt your plan. With that in mind keeping an eye on your current plan is imperative to a successful business so here are some ideas to help you check your strategy.
Return on Investment
Return on investment, or ROI, is a business-performance measure that is used to evaluate or compare the efficiency of one or a number of investment opportunities. This works by directly measuring, or attempting to measure, the return of an investment based on its initial cost. The results are usually displayed as either a percentage or a ratio.
How Can We Measure ROI?
There is an equation we use when calculating the return on investment which is:
ROI = (Current Value of Investment - Cost of Investment) / Cost of Investment
This will give you your return in the form of a percentage which makes it very easy to compare with other investment opportunities. The current value of investment refers to how much money your investment is currently worth and the cost of investment is whatever the amount of money it cost to invest in that company. Understanding ROI can be easy when we think of it as a gauge to measure an investment’s profitability. Whilst the calculation isn’t that complicated it can sometimes leave us feeling a little confused, if this is the case then finding the ROI using a calculator that has been created for you can help you understand the benefits of your investment a lot faster. We should always try and avoid a situation where we have a negative ROI because this implies a net loss of profit.
As an example, let’s say that Tom wanted to invest in his local coffee shop and ended up investing $2000. Two years later he decides to sell the shares which have risen to $3800. The way in which Tom would calculate his ROI is by taking his overall profit of $3800 and taking away how much he initially invested which was $2000, leaving us at $1800. He would then divide that by the original investment cost of $2000, which gives us a percentage of 90%.
To discover how much profit percentage we made over the time of the investment we can divide our percentage by the number of years we were involved in the company, in this case, it’s 2, meaning our investment grew by 45% each year.
It’s this reason why ROI is such an attractive form of measuring our effectiveness, as you can easily compare different investment opportunities with realistic projections. There might be cases where you’ll earn less money but at a higher ROI percentage in the short term, rather than making a bit more money a period of many years, making the shorter term deal more lucrative. We can see a clear comparison using ROI.
Rate of Return
Often used in conjunction with the return on investment, the rate of return is used to measure the net gain or loss of your investment over a set time period. This, much like ROI, is always shown in a percentage and it refers to your investment initial cost. You are essentially finding out the percentage change from the beginning of investment until the end.
How can we measure RoR?
When working out the rate of return then we use the following equation:
Rate of return = ((Current calue - initial value) / Initial value) x 100
This will give you a percentage value of your basic growth rate as a company between two time periods. This is a good way to track any business after you adjust for inflation, remember you always have to consider the effect of time and money on any business.
Lets, for example, say that Tom wanted to buy his local coffee shop instead of investing and he did so in cash for $140,000. He owned and ran that coffee shop for 7 years and ended up selling it for $520,000. He would find out his basic Rate of Return by taking the current value of the shop which is $520,000 and subtracting the initial value which was $140,000, that leaves him with $380,000. He then needs to divide that by his initial investment which leaves us with 2.714, multiply that by 100 and we are left with his percentage growth, 271%. Over a period of 7 years, he found he had a growth of 38% a year.
Moving away from seeing our effectiveness through a monetary percentage, another good way to see if your strategy is performing how you would like it to is by keeping an eye on the analytics of your online presence. With social media being such a prominent force in marketing these days, being able to access data of who’s interacting with your content is hugely important in understanding whether it’s working or not. Every social media site will give you access to your analytics as long as you’ve registered yourself as a business with them and will lay it out in a way that’s easy to read.
For example, Tom’s coffee company is trying to reach a target audience of 18-25-years old by selling what he believes is a new idea, he puts adverts out all over social media to try and get a response so people will come into his shop and order his new drink. However, using analytics he can see that the only people that are engaging with his adverts are those in the 35-45 age range, with this information he can adjust his marketing strategy accordingly to try and alter it to a younger audience.
There are many ways to check how effective your marketing strategy is doing and to begin with I would suggest keeping it simple, getting lost in a world of mathematics isn’t worth it when you don’t need to be confusing yourself. When it comes to promoting your business online use the analytics to your advantage and don’t spend any needless money promoting campaigns at the beginning of your existence, get the public on your side and they will do the rest without realizing.