You want your business to be successful – but do you know how you should be measuring success? You are no doubt aware of the importance of top-line (revenue) growth, and are probably keeping an eye on costs, as well. But when you do have to make outlays, how do you prioritize them?
It’s here that ROI – return on investment – is a critical metric. If a business considers the long-term value (the return) of each of its expenditures, it can spend money more intelligently. Plus, treating purchased items or services as investments increases the likelihood that the value of those purchases will be measured. That, in turn, improves both budgeting and long-term planning.
For an illustration of why ROI matters, look to American Link Global Technologies, an e-commerce portal with operations in the U.S. and Australia. The company discovered it could reduce its phone bill by 90 percent if it switched to RingCentral.
Rajiv Choudhary, American Link’s founder, recognized that his legacy business phone system was an inefficient use of funds. “I’m used to paying $2,000 or $3,000 a month for telecommunications. Now, with my RingCentral phone system, I pay $300 or so a month,” he says. “In my business, this is money I can really use.”
(RingCentral’s service is an excellent example of why calculating ROI makes sense. As this chart demonstrates, using RingCentral instead of a traditional on-premise phone system saves money from Day 1, and the savings keep growing as time passes.)
How can you become more mindful of ROI?
1. Remember to adopt the proper attitude. Think about expenditures with a healthy skepticism; ask yourself whether each purchase you make is truly necessary. Make an effort to do this any time you’re on the verge of spending money and it will soon become second nature.
2. Consider taking a deep dive into your current cost structure. Examining the expenses your firm has today will help you plan wisely for the future.
3. There won’t be huge savings in every area of your business, to be sure. But scrutinizing where you spend money and seeking alternatives to your current systems, when possible, can lead to greater cost efficiency.
4. In addition, quality comes into much sharper focus when ROI is made a priority. ROI analysis will show whether you’re getting the return you expect from the investments you make – if, in other words, the products and services your business buys are providing what you need.
RingCentral customer Michael Greenberg, the founder of Nature Coast Professional DJs, explains why it’s important to keep quality in mind. “In order to compete and be profitable,” he says, “you must invest in the important areas: your business equipment, your website and your means of communicating with your clients.”
Greenberg’s emphasis on profitability gets the heart of why ROI matters. Truly successful companies – those that consistently produce a profit – invest money where it will have the greatest impact. By working to maximize ROI, you too will set your business on the path to success.
Originally published Oct 17, 2012, updated Aug 07, 2020