Return on investment is a vital analysis formula to occasionally take a look at, no matter what business you’re in. It can sometimes take a while to get accurate results in a residual or retail business. Depending on the type of product or service you offer, some returns come faster while others take a long time to truly reveal themselves. You have to be in it for the long haul, plant your “seeds” and wait for them to grow; maybe waiting for the to reach their full potential. Here is the definition of Return On Investment (or ROI for short) from Investopedia.
A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.
The return on investment formula:
I recently analyzed sales from a one hour photo shoot several years ago, during a planned trip. The results were suprising. Here I was thinking that it had been a waste of time with all of the expenses, although after calculating the earnings I was pleasantly surprised. Unfortunately not everything you do is going to have a great ROI.
Why is ROI important to the success of your business? If you don’t crunch the numbers once in a while, you won’t know if you’re barking up the right tree or not. Be smart about your business analysis methods; try not to get too addicted to analyzing every statistic, to the point where you are wasting your own production time. Throwing a bunch of spaghetti at the wall is one way to eventually see what sticks, but eventually you also have to use what you’ve learned in order to make wiser business decisions. You’ll figure out which types of work you do, or specific products you sell, are the most worthwhile; also which types are not as profitable, maybe even a waste of time and money. This method works whether you sell ipad, iphone, or android apps, microstock imagery, or you are a zazzle pro seller or cafe press store owner. Everyone has a favorite type of product to produce, or maybe even a photographic subject that’s really enjoyable to shoot. In the end, you need to take into account the amount of time you’re spending investing in your product, and compare it to the amount of return you’re seeing. The “long tail effect” also comes into play.
Maybe you’re curious as to whether or not all of the precious time you’ve spent on social media marketing efforts have had a good return on investment? Well, you can figure that out very similarly. If you consider all time spent taken to network on sites like twitter or facebook as “straight up work hours” try taking the amount of time you’ve spent, and multiplying it by your normal hourly rate. Plug that into the ROI formula as the “Cost of Investment”. On a side note, the Photopreneur Blog interviewed me recently regarding the results I’ve seen from using a facebook business page in my social media marketing efforts.
