If you don’t know what negative ROI is, in this text you will be able to understand everything about
this indicator and how to deal with it!
To understand what negative ROI means, the first step is to understand what ROI is, or “return on
investment,” a term you’ll hear a lot when talking about marketing .
ROI is a rate of return that identifies the profit your company obtains through investments
made in a given period of time , calculated as a percentage.
These investments include everything that is made with future profit in mind, such as new marketing
campaigns or training for the sales team .
Calculating ROI will help your company identify which strategies are successful and able to get you
closer to your goals, as well as understand the performance of marketing campaigns and the effectiveness of each communication channel.
- How to calculate ROI?
- What are the causes of a negative ROI?
- How to avoid negative ROI?
How to calculate ROI?
The simplest way to calculate ROI is:
ROI = ((INCOME – COST) / COST) * 100
To perform the calculation, you only venezuela phone number list need to identify the value of the
income and the cost of the strategy to complete the formula above, so it will be possible to evaluate
the performance.
From this calculation, it is possible to evaluate the return on each investment you analyze. The final
result can vary greatly, as it can be a negative or positive percentage. If the result is positive, it
means that your investment is bringing a return , that is, profit for your company.
Let’s look at an example, if the revenue from a customer acquisition strategy is $100 and the cost is
$20, the ROI is 400%. From this, it is possible to deduce that every dollar you invest in this strategy
will allow you to earn $4.
In the case of a negative ROI result, the percentage is below zero and that means that the company is
losing money on this investment.
What are the causes of a negative ROI?
As we mentioned, a negative ROI is tiffy encourages her viewers to be an indicator that the
investment lost money, meaning that the company did not make a profit on the investment made.
In this case, all the strategies and processes of that investment must be analyzed to know what is
working and what is interfering with good results .
From this analysis, it will be possible to identify which points need to be changed to improve.
However, there are some reasons why the ROI of your company or strategy may be negative.
High cost
One of the causes of negative ROI is the need for a very high investment for a project to be viable . Here it is necessary to sg number evaluate what costs make up this strategy and how they can be reduced.
This analysis includes investments such as the choice of paid media for the dissemination of a marketing campaign, a paid platform for your company’s web hosting , the cost of strategy analysis tools and even the cost of physical facilities or equipment if they are necessary for the project.
In the case of analysis tools, for example, you may be able to use free tools until your investment reaches expected returns over a certain period of time.
Another example is the high turnover of employees in your company, which can impact the increase in the costs of a strategy due to the increase in investment in professionals due to hiring or firing costs.
Since investment costs have a major impact on ROI, in the event of negative results, it is important to review them . After an initial analysis of the results, you can modify the amount invested and contribute to increasing the ROI.
High risk
Another major cause of negative ROI is high project and investment risk. This is something that can occur when there is poor forecasting and data is not analyzed in a consistent manner in relation to the strategy objectives.
It is necessary to consider the risks associated with the launch of a product, marketing campaign or other business investment. When the risks are studied and taken into account before the execution of the project , the return on investment will help you choose the most coherent strategies and prevent problems that can generate excessive costs.
Reduction in income
All the value collected from the project or investment must be considered as income. For this reason, some scenarios such as economic crisis or poor company performance can cause a project’s income to decrease.
In the case of an economic crisis, the reduction in income occurs because this situation often also reduces the purchasing power of consumers, impacting your company’s income generation .
On the other hand, poor company performance may be related to internal processes or individual performances that will impact the development of your strategy.
How to avoid negative ROI?
Now that you know the possible causes of negative ROI, you need to understand how to avoid it. Check out these 3 tips below:
1. Stay tuned to your market
It is very important to always stay up to date on new trends and techniques to work on advertising strategies and campaigns. This includes being aware of the behavior and needs of your audience and the constant changes that may occur.
Therefore, it is essential to have a well-developed buyer persona to understand what your ideal clients are like.
In addition, it is essential to monitor what the competition is doing. This can be a factor with the power to transform your negative ROI into a positive one . Analyzing the competition also means capturing ideas to improve them and innovate in your market.
2. Analyze the results of your strategy
When putting a strategy into action, it is important to define which metrics and KPIs you should monitor in the process. In addition, the online environment allows you to monitor the performance of your actions in real time through complete reports and relevant and up-to-date data.
Thus, one of the measures to prevent negative ROI is to analyze all the information related to your strategy . This is important to discover possible flaws and points that can be improved and thus optimize your campaigns and make better use of your investment.
3. Evaluate investments well
Marketing strategies are constantly adapting and changing, but don’t forget that regardless of the strategy, it is necessary to wait a while for the expected results to appear.
So when calculating your ROI, it’s best to wait a while for your campaigns to bring in a return and for you to be able to evaluate a significant amount of data. Otherwise, you could waste a strategy or campaign that would work by making changes to it and abandoning it prematurely.
Without a doubt, these are some of the actions that will help you prevent and even review your negative ROI.
Now, you know that ROI has a profound impact on the health of your business and the importance of keeping it positive. So, use what you’ve learned as a starting point to improve your company’s strategies and campaigns and increase your profits.
And speaking of marketing strategies, I invite you to discover more about a project that can provide you with an excellent ROI. Download the ebook on corporate blogs right now .
