“How long will it take to get a return on my investment?” I am often asked this question and I believe that it deserves an answer. After all, it’s a perfectly reasonable question for a business owner to ask of their marketing company. Unfortunately, the problem is that the answer is a thorny one. Return on investment is not a “one-size- fits-all,” and it varies from company to company. Let us take a look at the two very different businesses:
Business 1 is a gambling website already making money. The owner decides that he wants to advertise on Google Adwords to extend his company’s reach and become widely known. He has heard that Google changed the rules recently, allowing gambling websites to advertise with Google Adwords, and he is excited at the idea of adding a well-established marketing avenue to his existing marketing plan.
Business 2 is in the idea phase. The owner wants to develop an app to enable an iPhone to function as a computer mouse. Since everyone and their aunt advises them to start marketing from day 1, the owner approaches us to help their business succeed as soon as it launches.
Now we look at three of the key factors that influence ROI
The first factor is product-solution- fit. Does your product solve a problem? With the gambling
business, the answer is yes. The business is making money, which is the proof. With the web-app business, the answer has yet to be discovered and, ultimately, will be answered after extensive market research.
The second factor is product-market- fit. Will people pay money for the solution? Again, with the gambling business, the answer is yes. People are already paying money; the owner just wants more customers. With the second business, the owner has not established this. A quick look at the app store shows that there are already people giving away a free iPhone mouse app. This creates a challenge for the business.
The third factor? The two business owners need to establish scale. Can they gain a sufficient number of customers in order to keep the business afloat? Business 1, already done. He has calculated his lifetime customer-value and knows his target cost-per-acquisition. Bonus? Google clicks for gambling are reasonably cheap, around R10 a click. The gambling business owner calculated that a customer is worth R3000 – R4000 per year, so the maths is pretty easy from there. He could probably spend R1000 per customer and see a return. With the app business, the price of an app is R3 – R4. The margin on that is tiny and he still has to give a percentage of what the app makes right back to the app store. Obtaining the scale portion of this is a challenge. In short, the second business owner has no validation whatsoever that anyone will buy his product, or whether he can gain them in sufficient scale.
And even if he could, the odds are stacked against him because he will have to acquire these customers for a few cents in order to see a return – a most unlikely scenario. A good marketing company should be able to tell the difference between business 1 and business 2 and everything in between. If iteration and testing needs to happen, there will be optimisation. The key thing that you can control in addition to restraining the variables is the speed with which you can go through the optimisation process. It is best in the long run to work with a marketing company that builds and tests quickly so that you can optimise your ROI in a shorter amount of time. Give me a shout in the comments section or fill in the form on the
Connect page if you need any marketing assistance.