Drive to Reimagine

How to improve your ROI in 2022 and beyond!

Engati Team
.
Mar 3
.
13-14 mins

Table of contents

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Ways to improve your ROI

Are you struggling to strive through digital transformation and find a way to increase the ROI post COVID? 

COVID-19 has speeded the adoption of digital technologies by several years—and many of these changes could be here for the long haul. 
~ Mckinsey

Though the push is proving to be gainful, it has brought in a lot of challenges and raised the expectations of customers and other stakeholders. With the striking boom in businesses and technology, new channels for investments and trading have opened up and gained significant attention from investors around the globe.

 At the same time, digital transformation has put a new question for the business world of how to track, measure,  and increase ROI and optimize experiences.  

ROI (return on investment) is the most vital performance metric in classifying an investment as a success, be it monetary or digital. 

 

Let this article walk you through understanding what ROI is? And how to improve your it significantly?

What is ROI?

ROI, or Return on Investment, simply put is the ratio between profitability and the cost of investment. It’s an indicator of efficiency and effectiveness for an organization’s investment, i.e., if you get a high return on investment, your plan is working in your favor.

This is an incredibly simple definition of what ROI is - even the formula is quite straightforward.

If it’s a higher figure, your plan is effective. If it’s lower, you might need to tweak your investment plan around. It’s incredibly black and white, but we’re now finding that this formula is now outdated. 

Your return on investment can be defined as:

  • Increased profits
  • Reduced expenses
  • Operational efficiency
  • Brand awareness
  • Higher sales
  • Reduced overhead or production costs
  • Higher customer satisfaction

‍How to calculate ROI?

net profit divided by cost investment is your ROI
Formula to calculate ROI

There are originally two methods to calculate ROI 

First method:

ROI= (Cost of Investment / Net Return on Investment​) ×100%​

 

For example, 

ROI= (Cost of Investment / Net Return on Investment​) ×100%​

= (50,000/70,000) ×100%​

=0.7142 ×100%

ROI = 71.43% 

 

Second method:

ROI= (FVI- IVI / Cost of Investment) ×100%​

Where, 

FVI= Final Value of Investments

IVI= Initial Value of Investments

 

For Example, 

FVI - 14500

IVI - 12000

 

ROI= (FVI- IVI / Cost of Investment) ×100%​

= [(14500-12000) / 12000] ×100%​

= (0.2083) ×100%

= 20.84

 

ROI can also be digital.

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What is Digital ROI?

Digital ROI is what you get back from all the time, effort, and resources you commit to your digital marketing strategy. It isn’t click-through rates, viral impressions, number of followers, or blog views. Your actual return is backed by finances that are generated after investing in a digital strategy, according to Steph (Nissen) Hermanson from Atomic Revenue. 

Steph also finds when companies approach the topic of digital or social ROI, they often find themselves getting lost in vanity metrics like likes, comments, followers, and subscribers. While these metrics are important, they do not equate to a return on investment. They do act as indicators of the effectiveness of a plan and they help you increase your ROI. 

Check out our interview with Steph

Rookie mistakes to avoid while considering Investment Plans

Before you dive into what kind of ROI you want to generate, be wary of the risks and the ROI improvement mistakes which you should avoid making.

1

All-in on one solution

One poor investment decision can throw everything off balance. And the whole failure is inevitable, it’s foolish to gamble all of your money on one solution. Even if your intuition is telling you that the solution is the way to go, the better option is to spread your risk and invest in a couple of plans, rather than one strategy. The broader pool could help you achieve a broader understanding of what’s working can even ensure better results. of what’s working can even ensure better results. 

2

Relying heavily on timing

Mostly, timing is just dumb luck. It is impossible to predict the next well-timed investment. It’s actually a trap that many businesses fall into. It’s best to invest now but to remember to be patient. Many times, businesses put all the effort into planning out when to invest next, instead of into the high-potential program that requires time and even more effort. Plans take time to develop, and growth takes time. 

3

Being risk-averse

By nature, humans are one of the most risk-averse creatures to exist. While this trait is beneficial in survival, it’s not the best when it comes to investments. Investing in “blue-chip,” or safe solutions can lead you to miss out on some hidden gems. It also represents a bias that causes you to overlook talent, as well as profits. Your managers need tools, insights, and skills to look for potential talents and strategies. The only way to get access to that is from a broader subset. This is why we mention the importance of spreading your risk earlier.

What is a good ROI then?

This depends entirely on what the data tells you. The straightforward answer is how much financial gain you get after investing, but you must align your data to your strategy. Even a simple task of reducing overhead costs is enough to give you substantial success. So what it boils down to is what your gut is also saying. That’s why it’s important to strike the right balance between a data-driven approach and an emotion-driven approach. 

While it is somewhat subjective, here are the main factors that influence decision-making.

What influences decision-making?

  • Capital acquirementHow businesses get capital to make the investment has a large impact on how the decision is made
  • Past experiences and cognitive biasesSomeone who is more risk-averse is more likely to make safer decisions that guarantee a lower ROI
  • Risk managementThe scope and the assessment of the undesired outcome has a huge impact on how businesses make decisions

How to increase ROI in 2022?

The most important thing about this question is that there is not just one answer or a definite way to tell what good ROI is. The definition of good ROI changes with the ultimate expectation/aim of the investment. It depends on your financial need and several other factors. 

However, it’s fairly straightforward. You have to first assess your business, then assess the market and your competitors. After doing a thorough assessment, you’ll find gaps. To maximize ROI, you have to fill them in.

Your ultimate ROI checklist

Here are 4 ways to improve your ROI in 2022!

1

Leverage data as a lens

Leveraging data is essential for ROI. Data helps you understand the wants and needs of your customers.

Similar to investing in stock, investing in a digital marketing solution involves a lot of studies. It is impossible to make a plan and implement a strategy without the data and analytics to back it up. They need to be kept in place to keep a pulse on what’s working, what isn’t, and the next step. 

In fact, the first step towards maximizing your ROI is by propagating a good data strategy to align it with your business strategy. You have to use data to determine the needs, demands, interests, and expectations of your customers. Once you know these expectations, it’s easy to meet them. You can discover these through:

  • Developing customer personas
  • Surveys
  • Social listening
  • Touchpoint maps
  • Journey maps
  • Predictive analysis
  • Segmentation

According to mTab, up to 50% of customers lie when participating in customer surveys. They rarely reveal their own feelings or voice their concerns primarily out of politeness and the innate need to become socially accepted. However, the subconscious never lies, and the data reflects on this. 

Data brings light to customer behavior and how they engage with your digital real estate. However, you can only go so far when you scratch the surface, and another way of doing that is by analyzing large quantities of data gathered from various sources using dataops platforms such as Meltano.

2

Invest in analytics

If you’re trying to figure out how to improve your return on investment, you need to invest in tools for data analysis. Tracking revenue can be complicated, so you’d also need the talent to back it up. 

As Steph mentioned earlier, it’s important to not get lost in vanity metrics.

  • Followers
  • Shared posts
  • Blog views
  • Sales funnels leads
  • Subscribers

Instead, focus on actionable sales metrics, such as:

With the right analytics in place, you’re now in a position to drive your team towards value efficiency metrics to drive the highest return. 

This more holistic view of your data also allows you to effectively plan your next step, which is figuring out what kind of ROI you want to generate.

3

Reduce overhead costs (in digital ROI context)

ROI requires the I, investment. Currently, 73% of businesses show no ROI. So, you have to assess your current financial situation and have a look at the overhead costs, i.e., the costs that don’t yield any profit. It’s very easy to say cut down and save up, but it’s important to analyze where the cost is going. 

Currently, we’re seeing a lot of costs going into advertising. According to Hubspot, an estimated 60% of digital marketing spending is wasted. 

Because of the shift in consumer behavior, a lot of money that was spent on advertising has gone down the drain. It has coerced marketers to their strategies that once worked in the past, are no longer in effect, and have yielded no returns.

However, nowadays, there’s more risk involved since the budgets have increased significantly. And we’re seeing even more wastage as marketing undergoes its digital transformation. Traditional marketing media spend has decreased, whereas digital is skyrocketing. But while the spending on digital marketing strategies has increased, we’re seeing a reduction of ROI in digital marketing. And businesses aren’t sure why.

4

Keep up with the changes in customer behavior

Due to the changes in customer behavior, advertisement loss reached an all-time high. But it is possible to cut back through a 360º view of all of your data. Hubspot details three models of statistical analysis for marketing. 

  • The Marketing Mix Model - This model focuses on more traditional marketing methods and provides insights on sales volume, the impact of traditional media on sales.
  • The Multi-Touch Attribution Model- This model is incredibly effective with digital media but offers limited offline coverage. There are also many correlation-based bases that influence results. As we all know, correlation doesn’t represent causation and this model fails to address this and faults to understand a customer’s intention when making a purchase.
  • Unified Measurement Model - Unified Measurement offers both online and offline coverage. It delivers more personal levels of data, where each media campaign is tailored for the customer. It’s more transparent, providing both a macro-level view and a bottom-up view of your marketing approach.

Having a transparent view of these insights can save a lot of dollars, and maximize your ROI.  

Circling back to Digital ROI

As mentioned earlier, Digital ROI or social ROI is what you get back from all the time, effort, and resources you commit to your digital marketing strategy. It’s the art of providing value to customers through digital means. Since social media is the means, we’ll be using the term, Digital ROI to refer to Social ROI. 

The formula for Digital ROI is as follows:

With the world moving towards digital, we’re seeing that customers demand a more holistic, multi-faceted experience that delivers value. The generic approach is now outdated. We need tools that engage customers and provide value.

So, we can’t get into a discussion about Digital ROI, without mentioning the Return on Relationship.

Check out our interview with Ted talking about Return on Relationship

 

‍How to avoid advertisement loss and get the digital ROI game going? 

1. Poor targeting

It circles back to data. Do you know who you are targeting? Have you found your ideal customer? Do you know where they shop? What do they want? Have you built a persona?

You can’t take a shot in the dark- you have to know who you’re marketing towards to create a message that touches them. A singular message to a broad audience never works out. You have to be relevant, you have to induce curiosity, and the message has to be clear. Unappealing content is yet another source that contributes to advertisement loss.

You have to tailor your content to your audience. You can’t expect your audience to fit into your mold. 

2. Lackluster content

Once you’ve found your target audience, you have to ensure you deliver high-quality relevant content to them every time. When you continue to provide value to your audience, you gain credibility and authority that engages your audience. The more people see it, the more traffic you gain, and the more likely you are to attain a return on investing in high-quality content

Remember to keep your content informative, but also entertaining to avoid audiences from dropping off. 

3. Wrong medium

Imagine putting all of this effort into crafting the perfect message, for it to land in the wrong area where no one can see it. Pretty wasteful right?

Well, 56% of ads are never seen by customers due to poor targeting.

So, after researching your target audience, you’ll discover which social pools they populate. Is it WhatsApp, Facebook, or Telegram? Find out, and shoot your messages there to maximize your ROI.

4. Where timing does make or break your strategy

You have your gun loaded, you have the target in sight, now you need to discover the right time to pull the trigger and shoot. For example, putting out a message to a Middle Eastern audience at 3 pm Eastern Time is more overhead costs down the drain. 

You have to be more sensitive to time slots to nail marketing to the right people.

5. Oversaturation

Another common mistake is that businesses like to keep their ads running over, and over, and over again. But this kind of frequency can hinder your brand image and harms customer loyalty. Not to mention, running those ads on a constant loop is more ad money getting flushed down the drain. Be wise with your ad frequency.

Sustainability and ROI

Due to the competitive nature of the 4th industrial revolution, we’re seeing both increased risk that leads to unsustainable growth- while it works right now, will it work long term? It’s a question you need to ask yourself.

Sustainable development is meeting the needs of the present without compromising the ability of future generations to meet their own needs- with economic prosperity, environmental protection, and social progress in mind. 

In order to achieve sustainability, there needs to be a commitment to transparency and accountability. 

Hari T.N. from Big Basket captures the essence of the funding cycle and how it ties in with sustainability. 

The funding cycle

The peak of the funding cycle

When the topic of digital transformation first came up in the late 1990s, we were at the peak of the funding cycle, dubbed “Fantasy abandoned by reason.” It’s where we saw a lot of entrepreneurs being fearless and pursuing outrageous ideas. 

We mentioned earlier that one of the factors that impact decision-making was acquiring capital- banks at the peak of this cycle (during 2015-2017), were funding many startups. Giving them millions of dollars to businesses and to strategies that weren’t feasible long term. 

The trough of the cycle

We primarily experienced this trough in 2020, with the onset of the pandemic and the global lockdown. The cycle was stagnant due to fear, and impulsive decisions that led to high ROIs during its peak now led to high attrition rates. 

As you can see, the impulsive purchases from the cycle’s peak weren’t sustainable at all, as it led to a lot of suffering and job loss during the trough. While yes, there was a lot of innovation during the cycle’s peak, how many of these innovations were used during the trough?  

Strategies need to follow a win-win-win formula also known as the triple bottom line according to this study. One for economic prosperity, the next for environmental quality, and the last for social equity. However, this unit faced a lot of criticism as there is no standardized unit of measure. 

We’re about to experience a peak once again, so we advise you to become aware of the effects of the funding cycle to learn how to grow sustainably.

Smart investors are the ones that learn from the cycle’s trough and induce responsible behavior and spending so that when the cycle is at its most prosperous, they can invest wisely to ensure sustainable growth and a consistent ROI. You might also want to check out this article to learn more on: How you can improve marketing ROI with the help of a creative agency.

How do you want to kickstart 2022?

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