If you believe that looking at the statements your accountant sends once a year is good enough review of your finances, chances are you aren’t paying attention to the ROI of your marketing activities. How will you improve something you don’t measure?
Entrepreneurs that don't compute the ROI of their marketing activities usually don't scale their business well. But even that’s not enough.
For now we’ll focus on how to measure ROI. The formula below will tell you if your business is scalable:
(Sales Growth - Marketing Cost) / Marketing Cost = Marketing ROI
A business with a negative marketing ROI is like a cleaning product made 100% out of car oil, it will only make a bigger mess the more you use it. If you can add significantly more customers without increasing your costs proportionally, your business will be "scalable", it will become more and more profitable as it grows.
As mentioned earlier, scaling means when revenue increases without a substantial increase in resources. Think about it this way, someone who is scaling their business efficiently will experience:
Are all those things present in your business right now? If not, go ask your accountant:
If you answered no to any of those questions, you may have some work to do. You see, most people think that letting the accountant count all the numbers is enough. But how do you know that they are counting all the right numbers?
Sure you can accidentally go viral and make a lot of money but hitting the lotto by accidentally going viral is not a real strategy. If you check, the people that go viral on purpose are actually very calculated.
The simple truth is, business owners that don't track their finances are more likely to fail. Businesses that don’t track their marketing & sales metrics are less likely to scale. Business owners that don't invest into their business rarely make millions. Simple.
Keeping track of the ROI of marketing activities is one of the most important things an accountant can do...if yours isn’t doing it it’s not your fault. Expect, now you know there is a proper way of going about business.
Now that we’ve identified that we need to calculate marketing ROI, there’s something else I need to tell you...because knowing your marketing ROI is not enough...we have to dive a little deeper.