ROI, as a tool, can be an effective and simple way to understand the success and profitability of a particular investment. It allows a firm to measure the specific existing or potential costs spent on advertising against the profits it will provide in the future, giving a professional perspective into the profitability of particular ventures and marketing options. In the case of ROI, it should be acceptable to lose a portion of profits initially to make a return later, as the money can be further reiterated into the firm or considered as profit for its members. In business, the process of investing money and resources into potential marketing, advertising efforts and specific products with the expectation of increased returns is one of the primary ways of increasing revenues and growing one’s firm. It should be noted that the process involves a degree of risk that is accounted for and mitigated.
The primary use of ROI, however, is not only calculating profits or discussing percentages. It provides the concerned parties with the relevant data to analyze the success and potential of new business ventures and choices made in corporate management. Evaluating the decisions using such evaluation tools can be an invaluable way of safely testing out business ideas and seeing which of them will work. Another useful tactic to solve business problems and find opportunities is analyzing one’s competition. Other firms and organizations working in the same field all strive to compete with one another, offering products and services that are constantly geared towards the best functionality and value (Lloyd, n.d.). Understanding the other options available on the market can allow a company to see possible opportunities for new development and disregard less ambitious ideas.
Reference
Lloyd, Alicia (n.d.) “The Importance of a Competitor Analysis and How to Conduct One: Kayo Digital.” Kayo Digital, Web.