How performance metrics help grow a business
Investments in business development must pay off, and it is desirable that it starts earning money as soon as possible. In order to understand whether the company is going in the right direction, businessman Yuriy Dubkov recommends regularly assess its activities – and performance metrics will help in this.
There are various indicators for evaluating the productivity of a particular business line, the most popular variants are ROI, ROAS, and ROMI. Each of these helps to better understand the processes in a particular area. ROI, for example, characterizes how much the investment has paid off. The metric uses the amount spent on product development and promotion, including each phase of the activity.
ROI
This performance indicator is extremely important for understanding the profitability of the business as a whole – whether the result is worth the money invested. If the ROI value is low, then the question arises about the expediency of further activities. Knowing and applying this metric helps to change marketing strategy in time, abandoning unprofitable projects in favor of more promising ones. ROI is the difference between the sum of income and expenses, divided by expenses, and then multiplied by 100%. This results in a percentage. Above 0% is considered a good result: it shows that the investment has paid off, although it has not yet brought profits.
ROMI
The measure of advertising effectiveness is the ROMI indicator, which characterizes the level of return on investment for marketing purposes. And in this case, it is possible to assess the feasibility of each channel, including mailing lists, contextual advertising, and others. ROMI gives an understanding of what campaign is beneficial and what needs to be changed. This promotion efficiency metric is extremely important because it is not always possible to understand whether the expenses are paying off based on the number of requests. ROMI is calculated using a measure of the difference between revenue and marketing costs. The result is then divided by the number of marketing costs and multiplied by 100%.
ROAS
ROAS metrics are used to analyze the benefits of a particular advertising channel or campaign. Thanks to the indicator you can see what part of the investment was returned through a particular channel. For example, the metric can help you find out the effectiveness of SMM or the launch of contextual advertising.
To calculate ROAS is very simple – you need to divide the money you earned from advertising by the amount you invested in it and divide by 100%.
When working with these indicators it is important to understand that they are similar, but if the ROAS metric evaluates the effectiveness of the project, the ROI helps to assess the overall situation with the payback of the business.
The data to calculate each metric should be as accurate as possible, with minimal errors. Yuriy Dubkov notes that in order to get a more realistic assessment of efficiency, it is necessary to take into account not only numbers but also general market conditions, and global and local processes that affect the business development.
