What Does ROI Actually Mean?

When most people hear the term ROI, they immediately think "Return on Investment". This traditional perspective focuses primarily on the financial benefits a business receives from its investments. While important, this view is somewhat one-dimensional, as it fails to capture the full spectrum of what ROI can represent.

In my experience working with diverse businesses, I've found that ROI can be interpreted in a more holistic and impactful manner. The people I work with often view ROI differently:

Return on IMPACT

Creating a Positive Impact

The concept of Return on Impact is centered around the positive influence one can have on a business and its stakeholders. This approach considers not only the financial returns but also the broader effects on the business environment and the mental well-being of those involved.

Business owners and managers often run their operations based on a combination of personal experiences, upbringing, education, previous workplaces, and social circles. This conditioning can lead to a narrow view of their business, sometimes resulting in stunted growth and a sense of overwhelm. The feeling of not being able to see the 'wood for the trees' can paralyse decision-making, leaving business owners unsure of which direction to take.

Bringing in an external perspective can be invaluable. It can help alleviate the sense of overwhelm, provide new ways to overcome challenges, and guide the business forward with clear direction, avoiding procrastination and other hindrances.

The Broader Picture

When making business decisions, it's crucial not to be fixated solely on the financial return. Consider the broader impact your decisions will have on the business and its stakeholders. Here's a valuable insight: the financial gain will naturally follow as a result of positive impact.

• Mental Health and Well-being

One of the most significant, yet often overlooked, aspects of Return on Impact is the effect on mental health and well-being. A positive work environment, where individuals feel valued and understood, can lead to greater productivity and satisfaction. This in turn can lead to a more cohesive and motivated team, which is likely to drive the business towards greater success.

• Customer Satisfaction

Another critical aspect is the impact on customers. A business that prioritises positive impact is likely to offer better customer service, which can lead to higher customer satisfaction and loyalty. Happy customers are more likely to return and recommend the business to others, thus driving growth organically.

• Community and Environment

Businesses do not operate in isolation; they are part of larger communities and ecosystems. Considering the environmental and social impact of business decisions can lead to more sustainable and socially responsible practices. This not only enhances the company's reputation but also ensures long-term viability.

Practical Steps to Implement Return on Impact

1. Evaluate Your Current Impact

Begin by assessing the current impact of your business. Look at how your operations affect your employees, customers, community, and environment. Identify areas where you are making a positive impact and areas that need improvement.

2. Set Clear Goals

Define what positive impact means for your business. Set clear, measurable goals that go beyond financial metrics. This could include improving employee satisfaction, reducing carbon footprint, or increasing community engagement.

3. Engage Your Team

Involve your team in the process. Encourage them to share their ideas and perspectives on how the business can make a more positive impact. This not only brings in diverse viewpoints but also fosters a sense of ownership and commitment.

4. Monitor and Adjust

Regularly monitor your progress towards your impact goals. Be prepared to make adjustments as needed. This iterative approach ensures that you remain responsive to new challenges and opportunities.

5. Communicate Your Impact

Share your impact story with your stakeholders. Transparency builds trust and strengthens relationships with employees, customers, and the community. Highlighting your commitment to positive impact can also differentiate your business in the marketplace.

The Financial Gain Will Follow

One of the most encouraging aspects of focusing on Return on Impact is that financial gains often follow. When a business prioritises the well-being of its employees, the satisfaction of its customers, and the health of its community and environment, it creates a solid foundation for sustainable growth.

A company known for its positive impact is likely to attract talent, retain loyal customers, and gain support from its community. These factors contribute to a resilient business model that can withstand market fluctuations and thrive in the long run.

A Case in Point

Consider the story of Patagonia, the outdoor clothing company. Patagonia has built its brand on sustainability and ethical practices. By prioritising environmental impact and responsible sourcing, Patagonia has not only garnered a loyal customer base but also achieved significant financial success. This is a prime example of how Return on Impact can lead to robust financial returns.

Conclusion

In conclusion, rethinking ROI to encompass Return on Impact offers a more comprehensive and meaningful approach to business success. It challenges the traditional one-dimensional view and encourages businesses to consider the broader effects of their decisions.

By focusing on the positive impact on employees, customers, community, and environment, businesses can create a sustainable and thriving model that naturally leads to financial gains. So, the next time you are faced with a business decision, don't just consider the immediate financial return. Think about the lasting positive impact it will have on your business and its stakeholders.

For further reading on this topic, I recommend Ayelet Baron's insightful article on how Return on Impact provides a more inclusive approach compared to traditional ROI, which primarily focuses on financial gain. Her perspective further elaborates on the benefits of adopting a broader view of ROI.

By embracing Return on Impact, we can build businesses that not only succeed financially but also contribute positively to the world around us.