Business owners always have to think about the ROI when spending money in the company model. To put it bluntly, the ROI is the return on investment and how much money they should expect to make back on the amount they spend. In some cases, a single decision or spend could mean a huge ROI, and in others, the situation isn’t quite as great. Here’s an example of how important the ROI can be.
A few years ago, Jared Kushner, Donald Trump’s son in law bought a building in New York worth millions of dollars. Unfortunately, the building was purchased during a point when the market was at a high. So, later when the market crashed they were immediately bought with a loss. The ROI was diminished completely, and the debt of the buildings quickly began to outweigh the benefits, ultimately costing Trump’s company millions every year. You can read more about this on www.nytimes.com/2017/04/03/ny As you can see then, ROI is crucial. A poor ROI may not have hit that business particularly hard, but think about how bad it would have been if that was their only investment. The company would quickly have been crippled by the debt.
That’s why it’s important to understand what effects ROI and how you can improve it for any financial decision in a business. Let’s look at some of the ways businesses invest money and how the ROI comes into play.
New tech is always going to cost business owners a fortune, yet they really have no choice but pay the price. Without new tech, the company will be outdated and quickly see reduced levels of efficiency. Ultimately, not bothering to upgrade tech could drag the business down. At the same time though, those heavy costs are difficult for businesses to justify unless there is a solid ROI.
There usually is but only if the tech is new and works effectively. Some business owners try and reduce the first fixed costs by purchasing cheap, second-hand tech instead. Although the first costs will be limited, it won’t be beneficial in the long term because second-hand tech almost always breaks down. Have a look at the disadvantages of second hand tech on www.makeuseof.com/tag/buy-second-hand-tech-pros-cons/.
One of the biggest problems that business owners have with new tech is the training. They have to train employees to use it and ensure that they know how to operate it effectively. It’s the clearest reason why ten percent of companies are still working on XP. They don’t want to waste time and money getting their employees up to speed. Of course, the issue here is that eventually, they will be out of the race completely.
Hiring staff is another area where the ROI is important, and training is crucial here too, but we’ll get to that in a minute. For now, we need to think about the cost of employees. For the average sized business, the cost of staff could be well over a million. There’s wages to pay every month, health insurance benefits, company cars and other expenses on top of these to consider.
That’s why you need to make sure you’re hiring the best team for your business. Hiring the wrong person for a role in your company will hurt your company more than you’d imagine. Since they won’t be completing the job effectively, they won’t be getting a lot done through the day. Ultimately, this is going to lead to productivity levels dropping. If it’s one staff member, it could be manageable but what if it’s every member of your team? What if they have all been chosen incorrectly?
This is why to guarantee a solid ROI with employees, it is advisable to use a professional recruitment service. With an agency like this, you’ll be able to gain access to some of the best workers on the market. That’s exactly what you need to ensure a great return for your immediate investment. But it’s not the only step that you’ll need to take. You will also need to think about training.
Again, training plays it’s part here. Let’s say you invest in the incredibly sophisticated tech found on sites such as www.pegasie.com/hp-unified-functional-testing-training-hp-qtp-testing/. This tech will allow you to ensure that your data applications and software tools continue to function effectively. However, you will need the staff to use the software, and that means they’ll need training. Ultimately though this investment makes sense. It will save you having to use an outsourcing service to operate the software and ensures you can utilize the staff you have already hired, expanding their role.
When thinking about the staff, you may also want to consider how long you keep them on. It is recommended that you freshen up your staff every so often, letting go of the weakest and only keeping the strongest on board. This will guarantee you have a solid workforce with the potential to take your company to the next level.
Investing In Property
Business owners should always think twice about investing in property because it is often quite difficult to gain a good ROI from a purchase such as this. The problem is that property is incredibly expensive and it may be more than a small business owner can handle. On top of the first purchase or the rent, you also have to consider things like maintenance, energy bills, and even taxation.
This all adds up and the fact is you can avoid these bills by setting up a business at home. In doing so, you may not get an ROI because you won’t really have invested any money. But you will avoid a potential loss. Generally speaking, you should only invest in business property if it is absolutely necessary for your company model. Don’t invest if you think that you can do without it. Or purely for the purpose of having a home point for your company. The home point can be your own personal property instead. One of the benefits of setting up your office at home is that you will be able to make tax deductions on any excess bills caused by your business.
Knowing You Have A Solid ROI
This is a little tricky, and we can look at a basic example of how it’s not always clear whether you’re getting a good ROI. Let’s say that you’re a small business. So small in fact that you are the only worker in the company. You’re your own boss, and you decide for your business to work effectively, you need a new laptop. That laptop costs two thousand dollars. How do you know that money was worth spending?
Well, there are a few factors you can take into account here. Perhaps that laptop has a faster processing speed, and therefore you get more work done through the day. Maybe, it doesn’t break down as often, and this means that there’s less downtime in your business model. Or maybe, you are just happier using it, and this has led to a more productive output. You might not even realize the ROI until five years later when you see it’s lasted all that time without ever breaking down.
Generally speaking, if you have a good ROI, you will see some sort of measurable benefit to your business model. For instance, hiring a new employee might mean that you have a high number of clients coming into your business each month. Or, it could mean that you see a slight increase in profits.
Of course, it may not always be possible to see the ROI provided by employees because there are countless mitigating factors that come into play. That’s why you need to set your own targets outside of perceived direct financial gain. So, when you hire an employee, you will set out targets that you want them to meet as well as ways those targets will be measured. You will then monitor that employee to see if the targets you chose are being reached. If they are, congratulations, that was a fantastic hire and provided brilliant ROI. If not, well, it might be time to think about reassessing the situation.
Does ROI Just Benefit You And Your Company?
Actually no, you’ll find employees are happy that they are showing constant and consistent evidence of a solid ROI too. It will boost their employment satisfaction levels, leading to higher levels of productivity and thus, a higher ROI. Have a look at www.inc.com/guides/201105/ for some of the other ways you can improve employee job satisfaction. This is one of the reasons why it’s beneficial to meet with employees and alert them of how their situation has improved and the kind of benefits they are bringing for the business.
As you can see them, there’s a lot to think about when aiming for a solid ROI. First, it’s, important to realize that you should always be looking for a return on investment, no matter where you’re spending your money. However, you should also understand that the ROI may not always be completely clear. It can be an abstract benefit and to see it you’ll need to set your own targets.
If you do generate a fantastic ROI with every purchase, your business model will great future successes. If not, it really could be DOA.