Whether you are dealing with internal staff or outside contractors, the biggest mistake we see CEO’s making on a regular basis is focusing on budgets or cost over ROI. Successful owners start by asking the right power questions:
- What will it take to increase our sales in this area by X% over the next 12 months?
- Given our size/position relative to our competitors, how much do we really need to invest to effectively compete? In which areas (SEO, paid search, affiliate, social, mobile, etc.?) should we be focusing our investment?
- Given my product/service set, current positioning and budget, what are the highest ROI activities we should be focusing on?
- How can we ensure that as we go down the road, we quickly eliminate non-performing activities and focus our dollars on profitable ones? What metrics should we use to identify them?
- What is a reasonable expectation of overall ROI for the investment I’m making?
These are the kinds of questions that will lead to a blueprint for success, rather than simply a list of things that will be done for a given budget.
Playing to win
The reason this is important is because people often wonder why they don’t get the results that they want. Generally, this is because they aren’t asking the right questions. They focus on a budget figure rather than getting an accurate picture of what investment is needed to create positive ROI.
You are competing directly against other companies that are investing in the same kinds of services, so understanding where you need to be positioned relative to them is critical. Many companies fail because they invest too little or try to take on major competitors with too little ammunition. Your trusted advisors should be telling you when you’re under-sizing the task.
If you are using outside contractors to assist you, you also need to calculate the additional costs on your end to support the work the vendor is doing. You may need to spend additional staff time to augment their efforts and implement their recommendations.
It’s important to factor these costs into your overall budget as well as your ROI calculations, so that you get a true sense of the return. The right way to think about it is: “What do I need to invest in a program so that I win? What do I need to do so I become relevant enough to attract clients and build significant ROI?
Need help caclucating the ROI of a potential campaign? We can help, request an evaluation.
Let’s say you were going to enter a marathon and were talking to a trainer and you said, “I want you to train me for the marathon but I’m only willing to spend two hours a week training.” A trainer who is desperate for the money and doesn’t really care will say, “OK, sure. I’ll work with you for two hours. I will put together a plan and we can get started next week.” On the other hand, someone who really knows what they’re doing will look at you and say, “You might as well not waste your time, because you’ll never even finish the race if you don’t commit at least 10 hours a week to the training process – and I don’t coach people that won’t finish.”
We have a client who runs a professional services firm and when they first came to us, they were doing about $1,000,000 a year in online sales. Sales had been flat for over a year and they were looking for ways to move the needle and increase revenue.
When we spoke to them originally, we talked to them about what they were trying to accomplish (their campaigns, etc.) and the CEO was adamant that he wasn’t willing to increase his budget. They had a vendor in place that had been working with them for the last two years and he felt that the amount that he was investing was an amount that he wasn’t willing to increase.
We really got into a deep conversation about what his objectives were and as we really defined his goals for growth, it became very clear to us that he needed a different kind of partner. He needed a partner that could do more comprehensive work than the company that he was with currently and that that work was going to be more expensive. In fact, it was going to be almost double the budget that he was currently spending.
The conversation really turned to ROI vs budget. Over the course of these conversations, we were convinced that he could see significant increases in sales by adopting a different strategy with a different partner, but it would require an additional investment.
Ultimately, he took our advice and decided to go with the company that we recommended. The additional cost was $3,000/month over what he was paying before, but with the new program in place his sales tripled. If you figured it on an ROI basis it was almost a 900% return – obviously a win for him, but would never have happened if he’d stuck with a fixed budget.
Once you have a clear understanding of your ROI requirements you will be able to Set Clear Expectations with your vendors.