What is return on investment?

What does it mean and how can it help you?

Return on Investment is at the heart of any investment an ongoing business entity makes.

If we agree that it is the objective of any business to make investments that provide a return, then it also means we have to do so in a way that is the return on the investment greater than the investment we make.

It is also the objective to make investments that have returns that justify the given level of risk and uncertainty that might be associated with the investment.

Types of components to answer, what is return on investment

Typically when asked the question, what is return on investment, we think about the answer in terms of marketing investments. We see marketing investments in two areas:

  1. The purchase of media to deliver messages to potential partners and consumers – These could include the placement of television ads, the purchase of clicks in a pay-per-click campaign. They could also include the investments required to make social media posts or those to improve the search marketing of the brand.
  2. The purchase of investments to improve the operations of marketing – These could include marketing automation, fixed costs related to personnel and many other ongoing, long-lasting investments.

These marketing investments mirror similar classifications of investments made in the rest of the company as it relates to the question, what is return on investment.

Answering the question, what is return on investment

Critical to answering the question as to what is return on investment is the timing of the investments and the timing of the returns. Most investments are usually done over a short period of time, whereas the returns can be realized over a longer period of time. In some cases this can last over many years. The last consideration is the level of risk or uncertainty in any of the calculations. Typically the ‘cost’ of risk must also be included when determining whether one investment is better than another, given specific answers to the return on investment question.

This question is at the heart of any investment a company makes. It is the objective of any business to make investments that provide a return that is greater than the investment. It is also the objective to make these investments and reap the returns given the level of risk and uncertainty that might be associated with the investment.

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