ROI and its Role in Profitable Business Decisions

Board and card games played a key role in my recreation while growing up. Cribbage, Hearts, Monopoly, chess, Yahtzee, Connect Four, and Sorry! were a few of the gateway games that ultimately led me to collectible card games (CCG) in high school and more advanced board games as an adult.

While I was aware of Magic: The Gathering’s existence back then, Yu-Gi-Oh! was the CCG that grabbed the firmest hold on my attention after my years with the Pokémon Trading Card Game. I didn’t have a lot of money to buy cards back then, so I turned to trading and competitive tournament play to improve my collection.

I developed an aptitude for both very quickly, throwing myself into research on what the best decks were playing and keeping an eye on the local community for new acquisitions and cards that were in demand. I developed a reputation pretty quickly for my knowledge of the game and access to an extensive collection, making a lot of friends during my years in the hobby.

Not everyone in my playgroups prospered as I did, which was puzzling to me at the time. Looking back on why this was the case, the answer is obvious and ties into a concept I didn’t realize I had stumbled on to back then. It’s also what we’re discussing today.

What is Return On Investment (ROI)?

ROI is the percentage of gain or loss you receive after investing a resource. For businesses, this is frequently measured monetarily. If you spend $800 on advertising, you want to get more than $800 back in profitable clients during the time you’re advertising. Spending $1,000 on tools should enable you to make and sell thousands of dollars’ worth of marketable products or services.

Seems pretty simple, right? You want to get more out of an investment than what you put in.

Applying this idea to my CCG days, this meant that anytime I made a trade, I was aiming to get cards that had a higher value than those I was trading away. To make that process possible, I needed to make sure I had cards people desired enough that they were willing to make such trades.

You could also do this by hoping the other person wasn’t aware of how valuable the cards were on one or both sides of a given trade, but that generally wasn’t the way I handled things as I matured. A good reputation is key for repeat business, after all.

Is my ROI negative if I lose money?

Not necessarily. Up to this point, money has been the primary focus in order to keep the concept of ROI straightforward. Savvy business owners understand that there are other resources beyond cash that can factor into their ROI, and their involvement can blur the lines between accounting records and reality considerably.

One such example (and money’s primary counterpart) influencing these ROI calculations is time. As with money, you’re usually aiming to make the biggest profit relative to what you invested in a given task. Your resulting profit doesn’t always have to be monetary though, and this trips a lot of people up when evaluating their gains.

So let’s jump back to my younger self again. Between growing up in The Middle of Nowhere, Iowa and my poor eyesight, my ability to travel as a teenager was extremely limited. As a result, most of my time was spent hanging out at home or at school. Becoming good at Yu-Gi-Oh! was going to take considerable practice, so my primary locations to do so had to be at these two places.

Given that my siblings were younger and still developing critical thinking skills, school became my default training ground. I already had to be there for several hours a day, so spending my free time playing wasn’t costing me anything. If I got to trade with other players to improve my decks, I was even netting a profit where one didn’t exist before (no offense to any teachers reading this, that was just my viewpoint back then).

As my friends got their driver’s licenses, my ability to travel expanded a little bit, and we were able to go to the closest game shop at the time to play in tournaments. It was about an hour away by car, and the average tournament took around 3 hours to complete, but my love of the game and the fun I had spending time with friends were more than enough to justify the time.

Additionally, each $5 entry fee came with a booster pack of cards (valued at $4). You could win up to 3-6 more depending upon how you placed and the number of players, giving you the opportunity to multiply the value of what you spent. If you didn’t spend time learning and practicing the game, your odds of successfully doing this were quite low.

Since I invested ample time and effort, I almost never walked away with less than 1 additional pack for my trouble, plus whatever I was able to acquire through an enormous trade pool. Netting over $50 in profit during trades was fairly common during each tournament, which in turn fueled more gain during the coming week at school.

During the rare occasions I performed poorly in a tournament, the value of the cards I acquired was usually enough profit all on its own. I lost $5, but gained $50 in merchandise I could use to recoup or exceed the $5 I spent. The cash wasn’t in hand at that point, so it looks like a loss on paper, but my ROI would still be considered positive by most accounts.

Opportunity cost can make all the difference in your ROI

Being young and in school, my time was not particularly valuable in the earlier example. The highest opportunity cost I would have had to pay would be reflected in my grades, which in turn would have led to restrictions from my parents if they slipped. I rarely allowed this to occur, but the fact remains that I’ve still been oversimplifying ROI by using an example without a significant opportunity cost.

By spending a resource to do something, you’re also electing not to spend it on countless others. Such is the cost you pay for taking advantage of any opportunity inside or outside the business world. For example, if you spend time cleaning a storefront, you’re not spending it on checking your email, answering customer questions, or doing your taxes.

This is where focusing exclusively on the monetary portion of ROI creates the biggest inaccuracies. By failing to factor in the value of your time, capital, and other resources, you create enormous opportunity costs that will cause significant harm in the long run. A prominent example of this occurs with the management of business websites.

The average business owner who is building their first website will often spend a minimum of 40 hours learning how to use a WYSIWYG and using it to build a mediocre website. Let’s say they saved $1,500 in cash by tackling their project this way.

If their time providing products and/or services is worth more than $37.50 per hour, they are costing themselves money. If the mediocre website turns away more than $1,500 in business from unimpressed visitors, money is being lost on that front too.

Oftentimes, both are the case.

This is why ROI is such an important piece to the puzzle that is business success. Every element of your advertising, staffing, product selection, and daily operations can be analyzed through ROI to measure profit, sustainability, and growth – but only if you take the time to critically analyze these facets through a few different lenses.

Doing this requires you to look at ALL your losses and gains, not just those that directly relate to your paycheck. You need to be able to see where they’re coming from and how they relate to one another. Those who don’t bother or are unwilling to delegate are simply setting themselves up for failure down the road.

That’s not to say that measuring ROI is always going to be easy. Traditional advertising, SEO, and staff efficiency are examples of costs that are always going to have unseen variables attached to them. Entrusting their execution to experts who can help you minimize your risk and maximize your reward is one of the best ways you can protect your ROI from the unknown.

How can Midwest Websites help maximize my company’s ROI?

We specialize in website design and SEO, and know how to assess, leverage, and improve a company’s current position to strengthen their presence online. This helps get your name in front of prospective customers that need your products or services to solve issues in their lives. We invest the time so you don’t have to, and do so without breaking your budget.

Interested? Gives us a call at 319-229-5225 or send an email over to [email protected] to get started.