Business owners who put money into their company usually want a healthy return on investment. But because every business situation is different, one owner’s great and wise financial investment could cause everything to fall apart for someone else.
Still, if you’re planning on putting some serious money into your business and you want a return on investment, there are several strategies you may want to consider.
1. Avoid gambling with your money.
You may not see it as the equivalent of placing a bet, but consider asking yourself one question: Can I afford this investment? If you can’t, then you could be playing a high stakes game of poker.
“Never invest money that you aren’t prepared to lose,” says Darren Bonawitz, co-founder and CEO of fiber network Sherpa Fiber, based in Overland Park, Kansas.
When you’re mulling over whether to make a big investment, playing devil’s advocate may help you with your ROI analysis. Bonawitz suggests spending twice as much time coming up with all the reasons things may not work out as you spend determining why things will work out.
2. Invest in something that has staying power.
If you invest in something like new computers or a delivery van, you may have a return on investment that can help you generate revenue once the expense is a distant memory. (That’s the hope, anyway.) If you put all of your money into a lot of advertising that will run for a day or two, you could get sales that do give you a good return on investment. But you might also get absolutely nothing from it.
“To me the best investments are those that are permanent,” says Felix Hartmann, the CEO of crowdfunding site FundThis.
For instance, Hartmann says that he made a $5,000 investment in his research and development that ended up increasing his checkout rates by 300 percent.
“These benefits are permanent, while ads are short-term sales,” he says. “The key is to strike a sustainable balance between the two.”
While you’re trying to find that balance, this next step can help.
3. Research and weigh the risk of your investments.
It’s easy to get so excited about an idea that you don’t really think it through. But researching the risk of an investment can help increase the likelihood of a return on that investment.
“If I bring on a new hire or invest in technology for my marketing agency, I want to make sure I can pay the bills right off the bat,” says Jason Parks, owner of The Media Captain, a digital marketing agency based in Columbus, Ohio. “I don’t get romantic thinking about the potential [I might see] a year or two years down the road, a mistake a lot of business owners make.”
Parks says that if he can’t immediately cover the costs, he doesn’t make the investment in his business.
If I bring on a new hire or invest in technology for my marketing agency, I want to make sure I can pay the bills right off the bat.
—Jason Parks, owner, The Media Captain
Yet Parks still does take risks without knowing what the outcome will be. (That’s just something that you may have to do to avoid stagnation.) He just hired a senior web developer, his highest salaried employee to join his firm since he opened it seven years ago, and a salesperson.
In theory, maybe investing in these hires won’t lead to a big return on investment (no offense, senior web developer, if you’re reading this). But Parks feels certain that it was the right move.
“I knew based off of my solid ranking on Google, which generates consistent leads, that there would be new business in the funnel for many months to come with this developer,” he says. “There were also leads in the pipeline that I knew I’d be able to take on with this developer.
“For my business to grow,” he concludes, “I need to invest in people and technology.”
4. Crunch the numbers to see the possible return on investment.
If you want a solid return on investment, this can be one of the most important things you can do.
Allen Walton is based out of the Dallas-Forth Worth area and owns SpyGuy Security, an online business that sells surveillance equipment. For about a year, he was thinking of hiring a writer to produce content and new copywriting for his website. He says he thought that hire would improve sales and help grow his business considerably.
Walton had done the research and knew how much it would cost to hire a writer he had in mind. But the number he was quoted was in the low five figures, and he kept putting off spending the money.
Then he hit a downturn a few months ago and wondered if he would have been hit as hard if he made his investment and hired the writer.
“So I took out some notebook paper and did the math,” Walton says.
His ROI analysis concluded that if the content and copywriting could lift his sales by 10 percent, his investment would be paid off in one month.
“If it was only a 2 percent lift in sales, it would have taken five months to pay off. That’s still really not that bad,” Walton says. He reasoned that over time, the investment would be a boon to his sales. “So I pulled the trigger.”
So far, his ROI is paying off. And from here on out, Walton says he’ll always run the numbers before dismissing an investment he is considering. Sometimes, you can’t afford not to invest in your business.
5. Remember to invest in the person running the business.
It’s all too easy to forget. You’re probably consumed with your customers and making your operations more efficient. But every once in awhile, remember to invest in you.
“The best investment is always an investment in yourself. Whether that be in your education—business books, seminars or conferences—or physical and emotional health, the highest return you’ll ever see on your money is when you invest in yourself,” says Doug Sands, founder of Restaurant Clients Magnet, a social media marketing firm in Iowa City, Iowa.
“Take the average business book for example,” Sands says. “Most cost $15 to $25. Some you can get used for $5. If you gather one tip from that book that helps your business in one way, that tiny investment has already paid for itself.”
“The knowledge you got for peanuts can influence the course of your entire business,” he continues. “Maybe it helps you reform your client retention strategy. Maybe it helps you save $4 in acquiring new clients—if you’re working with thousands of clients per month, that regularly saves you $4,000. All from a $15 investment in yourself.”
You’ve made your business what it is today, but if you feel like there’s room for improvement, perhaps you’re holding it back. Every entrepreneur can improve on something, and whatever you improve might be the jet fuel your company needs. Maybe you need to delegate tasks better or work on your leadership skills. Really, if you want a strong return on investment on your business, but you’re not sure where to start, the best place to look may be in the mirror.
Author: Geoff Williams
Journalist, freelance writer
