Want a Better Return on Your Investment? Follow These 5 Strategies
All business owners who invest money into their company wish to have a healthy return on investment. However, since every business situation is different, one owner’s great and wise financial investment can end up making everything to fall apart for someone else.
Still, if you are planning to invest some serious capital into your business and you want a return on investment, there are some strategies you must consider.
1. Avoid gambling with your money.
Maybe you might not see it as the equivalent of placing a bet, however, consider asking yourself this question: Can I afford this bet? If you can not, then you are playing a high stake game of poker.
“Never invest money that you aren’t prepared to lose,” said Darren Bonawitz, co-founder, and CEO of fiber network Sherpa Fiber, based in Overland Park, Kansas.
When you are thinking of making a big investment, playing devil’s advocate can help you with the ROI analysis. Bonawitz says spending twice as much time coming up with all the reasons and things will not work out as you might spend determining why things will work out.
2. Invest in something that has a staying power.
If you invest in something such as new computers or delivery van, you can have a return on investment that will help you generate revenue once the payment is a distant memory. If you put all of your capital into lots of advertising that will run for one day or two, you can get sales that will give you a good return on investment. However, you might also get absolutely nothing from this investment.
“To me, the best investments are those that are permanent,” said Felix Hartmann, the CEO of crowdfunding site FundThis.
For example, Hartmann says that he did an investment of $5,000 in his research and development that ended up with the increase in his checkout rates by 300%.
“These benefits are permanent, while ads are short-term sales,” he said. “The key is to strike a sustainable balance between the two.”
While you are still trying to find that balance, this step can help you.
3. Research and weigh the risk of your investments.
It is easy to get excited about any idea that you might not think it through. However researching the risk of investment will help in increasing the possibility of a return on that investment.
“If I do a new hiring or invest in a technology for my marketing agency, I want to make sure I can pay the bills right off the bat,” said Jason Parks, owner of The Media Captain, a digital marketing agency based in Columbus, Ohio. “I don’t get romantic thinking about the potential [I might see] a year or two years down the road, a mistake a lot of business owners make.”
Parks says that if he can’t immediately cover the costs, he doesn’t make the investment in his business.
However, Parks still take risks without knowing the possible outcome. (Now this is something that you will have to do to avoid stagnation.) He hired a senior web developer, his highest salaried employee to join his firm as he has opened it seven years ago, and a salesperson.
Theoretically investing in these hires will not lead to a big return on your investment. However, Parks feels that it was the right move.
“I knew based off of my solid ranking on Google, which generates consistent leads, that there would be new business in the funnel for many months to come with this developer,” he said. “There were also leads in the pipeline that I knew I’d be able to take on with this developer.”
“For my business to grow,” he concludes, “I need to invest in people and technology.”
4. Crunch the numbers to see the possible return on an investment.
If you want a big return on an investment, this can be one of the most imperative things you can do.
Allen Walton is based out of Dallas-Forth Worth area and owns SpyGuy Security, an online business that sells surveillance equipment. For about a year, he was planning to hire a writer to produce content and copywriting materials for his website. According to him, he thought that hiring would improve sales and could help his business grow considerably.
Walton did the research and calculated how much it will cost to hire a writer. However the number he was quoted was in the five figures, and he kept spending off the money.
And then he hit a downturn few months back and wondered if he would have hit as hard if he made his investment and hired a writer.
“So I took out some notebook paper and did the math,” said Walton.
His ROI analysis concluded that if the copywriting and content could lift up his sales by 10%, his investment will be paid off in just one month.
“If it was only a 2 percent lift in sales, it would have taken five months to pay off. That’s still really not that bad,” said Walton. He reasoned that in some time, the investment will be a boon to his sales. “So I pulled the trigger.”
So far, his ROI is paying him. And from here on, Walton says he will always run the numbers before dismissing the investment he is considering. Sometimes, you can not afford to avoid an investment in your business.
5. Remember to invest in the person running the business.
It’s always easy to forget. You are consumed with your customers and engrossed in your operations to make it more efficient. However, every once in awhile, invest in yourself.
“The best investment is always an investment in yourself. Whether that be in your education, business books, seminars or conferences or physical and emotional health, the highest return you’ll ever see on your money is when you invest in yourself,” said Doug Sands, founder of Restaurant Clients Magnet, a social media marketing firm in Iowa City, Iowa.
“Take the average business book for example,” Sands says. “Most cost $15 to $25. Some you can get used for $5. If you gather one tip from that book that helps your business in one way, that tiny investment has already paid for itself.”
“The knowledge you got for peanuts can influence the course of your entire business,” he adds further. “Maybe it helps you reform your client retention strategy. Maybe it will help you save $4 in acquiring new clients—if you are working with thousands of clients per month, that regularly saves you $4,000. All from a $15 investment in yourself.”
You have made your business what it is today, however, if you feel like there is room for improvement, perhaps you are holding it back. Every entrepreneur can improve, and whatever you choose to improve can eventually turn into the jet fuel your company needs. Maybe you need to delegate the tasks better or work on your management skills. If you want a strong return on the investment you did in your business, but are not sure where to start from, the best place to look can be in the mirror.
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