My Oh My, Where’s My ROI?
All entrepreneurs face a familiar struggle. In order to conserve their profit margins they know that they have to keep their overhead costs manageable. They are extremely wary of the toxic effects that needless, frivolous or vanity spending can have on their businesses. They know that they need to stay agile and keep a healthy cash flow through their business so that they can capitalise on any opportunities that might come along to improve or grow their outfit. At the same time, they understand that investment is a healthy and necessary part of business. Failing to invest in opportunities can be just as crippling for a business as spending indiscriminately.
Thus, all entrepreneurs know that business spending can be both good and bad. The only way to determine whether a capital investment will help or hinder their enterprise is by calculating its Return On Investment (ROI). This can be easier to do in some areas than others. Here we’ll look at some useful ways in which entrepreneurs can preempt the potential return on a given investment as well as suggesting some generally safe areas of investment for SMEs with growth on their minds…
Fiscal multipliers and applying the formula
When approaching a prospective investment, entrepreneurs will want to know how long it will take for the investment to begin to pay for itself. This can be determined by calculating the investment’s fiscal multiplier. This means the economic activity that the investment will generate in proportion to your expenditure. If you buy a patch of inventory which you sell at a profit of 30% your fiscal multiplier is 0.3. While this is fairly simple to calculate, the waters get muddied when it comes to greater capital expenditures. The waters are muddied when we consider that the revenue an investment generates isn’t always the same as the profit it generates. That said, some investments are safer than others.
Managed IT services
In the fast-paced and competitive world of small business, entrepreneurs need to stay agile in order to meet today’s challenges while pre-empting tomorrow’s. But spec buying tech because it might come in handy is an extremely risky endeavour. Thus, many businesses use managed IT services. Not only are they able to provide tech that is suitable for the specific needs of your business, they will regularly audit its efficacy, suggesting potential upgrades where needed without compromising your workflow or productivity.
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In an era where customers know that they can afford to be fickle, investing in marketing is always a safe bet. There’s no point being great at what you do if nobody knows who you are. Money spent on PPC campaigns, social media blitzkriegs and growing the value and reputation of your brand is always a safe bet.
HR is an extremely complex discipline and as a small business it’s your job to make sure that your HR practice meets compliance standards. This can be a colossal drain on your time and resources and make you vulnerable to litigation if mistakes are made. This is why many SMEs consider outsourced HR function a necessary cost. While it may not generate a quantifiable ROI it represents enormous savings.
The better you’re able to calculate your ROI, the more you can rest easy in the knowledge that your investment will make your business stronger.
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