What is Return On Investment (ROI) and How Can My Small Business Use It

Return On Investment (ROI) is a metric to tell how much can be received from an investment in something. Normally presented as a percentage.

It might seem more in the realm of investors and big corporates. However, the idea behind it can be of great use to a small business.

When running a small business you'll be overloaded with things you could be doing and it is a constant challenge to figure out what is the best course of action.

Essentially how to best invest your time and money to get the greatest return.

More than Money

As with most metrics, an ROI distils a lot of information into a single number.

Large companies need simple metrics so various projects and be easily assessed and decisions clearly justified.

This gives smaller businesses a real advantage as more intangible elements can be considered. After all your business is far more than a few numbers on a spreadsheet.

Adding in all these aspects can make the process of considering the return on your investment a really useful tool. Even if you aren't able to sum it up as a percentage.

What do you have to Invest

It's worth looking at the various resources you have at your disposal and how they can be used. The obvious things you invest are time and money. However, it's worth considering the impact on your sanity - hard to quantify but possibly your most valuable asset!

What Returns are you looking for?

There are many things you could wish to achieve: greater reach, more time, increased income, social impact, new skills.

What is most important to you is likely to change to reflect the challenges facing your business at a given moment in time.

A useful approach is to pick a key objective and to rank all potential projects against how well they will help you achieve it. You'll need to consider the investment required, but I've found focusing on one outcome can make the process easier.

ROI - Risk of Inaction

A twist on the ROI acronym I heard recently was "Risk Of Inaction". I like this spin as it highlights the dangers of standing still as the world around us changes. It also highlights how we need to actively be seeking out opportunities to evolve our businesses and upgrade our skills. Far better than just viewing projects in terms of financial gain against cash invested.