A vital part of your business's financial health revolves around ROI. ROI is a key performance indicator and can be used to measure your business's success overtime. ROI stands for Return on Investment and while monitoring this may seem overwhelming, it is important to delve into. So, what can ROI help you determine? ROI can help you determine what you can afford, how to build a strategy, determine good debt vs bad debt, and it can help you get approved for a loan faster.
Know what you can afford
If you know your ROI, you know how investments impact your business. What if cash flow is tight, but you know buying a new tool or software can increase income quickly? This investment's ROI may make sense for your business. This is especially handy for a growing business looking to hire more staff. Your ROI is part of your cash flow forecasting. If you can determine the cost of adding on a new team member on top of the ROI of that investment, you won’t be stretching your budget thin when hiring.
Use ROI to track the profitability of different Sales Strategies. Say you spend $500 on Billboard marketing and $300 on a TV ad. After tracking the ROI, you know the TV ad generated more sales than the Billboard ad. You can use this to build more effective Sales Strategies in the future. Like mentioned before, ROI is part of your cash flow forecasting. On top of determining Sales Strategies, you can build a strategy for your next year. Using ROI will help you understand the story of your business and control the narrative.
Determine Good Debt vs Bad Debt
Understand when you can take on debt. Some debts, like a mortgage, for a new building or payment on needed equipment, have better returns than others. Use ROI to understand if adding on debt is a good investment.
Get approved for Loans Faster
Understand your books. Overall, knowing your ROI helps you understand your financial situation. Loan offers want to know that businesses have a grasp on what they spend money on before they give out loans.
The Bottom Line
Knowing your ROI helps show what is working and what is not. Your financials determine the health of your business. If you don't know or understand them, you don't know where you stand.
Do not wait to start tracking your ROI. Start tracking today and get a handle on your financial situation