What is ROI and Why do I need it.. or do you?

I was out over the weekend having a coffee with some friends down at St Kilda beach. A young lady came up to me and asked if I would like a free sample of a new product they were marketing.

I was looking at this product and reading the box and all I could do was think about how they are measuring the ROI on the campaign they
 were running?

Eventually, it got the better of me and I had to go over and ask. I started talking to the group and ask, how they were measuring the ROI on the campaign they were running. The first question I got was;

What is an ROI?

For those not into acronyms, ROI is your Return on Investment. Basically for every dollar invested in a campaign how much do you return.

They then ask, but how could you measure such a campaign as this. After a long chat, and them frantically writing things down, they run off with some free ideas to improve their campaign, and I got a few extra boxes to try.

So many people do not understand the important of measuring your ROI on your marketing campaigns. This doesn't matter whether it is a letter drop, free handout, email campaign or even your website.

Unless you measure the actual investment gain against the investment cost you will never know if your campaign has been effective or not.

Many a time I have had discussions with clients about, "why do I need to know where people have gone in my website, what difference does it make?" or "how can I tell?". If you are not running some kind on analytics on your website, you have no idea what pages people are visiting, whether you are directing the to the correct pages at all or of course what your bounce rate is. (and if you don't understand all of that give me a call)

Now don't get me wrong, ROI does not just have to be used to measure advertising and marketing. For me, there are five area's that we use ROI's. General, operational, technical, sales and marketing and comparisons against our competitors.

And why do we do this? because just like KPI's (Key Performance Indicators) to evaluate people's success at reaching targets, without accurate measures, we are unable to determine if we made any gains compared to the costs spent during set activities.

Now the fun comes when you start to work out how to measure your ROI or KPI's, but let us leave that for another day. If you do wish to discuss further ideas on how to set any of these or even implement them, then please drop me a line.

As always I am interested in your feedback, good or bad. If you have any suggestion or wish to add anything, please do.