As an entrepreneur, there is an extreme importance to understand every aspect of the operation of your business. One sure fire way to examine those aspects of business is calculating your return on investment. In the world of business that measurement can mean different things, for example to a business it can mean the determination of continuing to provide a product. However, to another it can be the determining factor of whether that business continues as a whole.
What is Return on Investment?
By definition, it is a ratio between your net profit over a period of time and the cost of your investment. To find the answer to what your ROI you divide your net profit by the cost of your investment. Your Net Profit is how much of a profit you have gain since the initiation of your investment.
Formula: Net profit/cost= ROI
Let’s dive a little deeper, as we provide a very important service that caters to the business mind it is very important to examine what ROI means in marketing. Return in investment is somewhat different. In marketing it is referred to (ROMI) Return on Marketing Investment. Instead of calculating your net profit and resources, you would replace that data with the net of your marketing spend divided by the marketing investment/risk.
Formula: Marketing Spending/Marketing Investment= ROMI
Furthermore, what is marketing spending? Marketing spending is the total amount you spend on efforts. Moreover, it includes your advertising and promotion. This information is important to a business because it helps you make decisions about what marketing efforts are positive for your business. In addition, it assists you on determining which strategies should be put on the shelf.
The overall goal is to provide insight about marketing and business in general that will help your company grow. Many people have this knowledge, yet there are an equal amount of start ups and small business owners that are lost when it comes to both marketing and business. Knowing the difference between ROI and ROMI could be a game changer.