Do You Know the ROI of Your Information Business?
Return on investment; it’s a term that real estate and stock market investors know very well. And it’s a term that you should know, too, in order to build your business. Do you know the ROI of your information business?
Todd Wasserman posted an article on ROI on Mashable this week. He describes the simple formula for calculating ROI for any type of investment, “Just take the gain from your investment and subtract the cost of your investment. Then divide that by the cost of your investment. For instance, if you spent $5 to make $7, then your profit is $2, which is divided by 5 to give you an ROI of $0.40 or 40%.”
Notice anything missing from this calculation, however? How about all the other costs of doing business? Your time, for example. Your time creating and marketing your information products is not figured into this ROI calculation, which does not make it inaccurate, but it’s important to remember that the money you spend out-of-pocket to create a product is only part of your real costs. YOU should be included in the calculation of costs as well.
But that’s not how it usually works in the beginning. As Wasserman puts it, “You may, for instance, sell a product at a loss to eliminate the competition, in which case you’d have a negative ROI for that particular project, even though it might help your business down the road. Startups often run business at a loss for years as they try to build a large audience and then, only later, consider how to monetize that audience. (Facebook is a good example.)”