ROI is the Real Measure of Success - Conclusion

photo credit: cambodia4kidsorgIf you’ve been following along, you understand what ROI means, the various types of investments that are required of an online project and the various types of returns you can expect. But so far this is a meaningless number (or worse a collection of hard to quantify costs and benefits). Why should you care about ROI and how can you use it?

In the end, ROI is the real measure of success or failure of a project. If I tell you that my online project makes me $2,000 a month that might sound good but if I spent $50,000 in startup costs and had to sell my soul to get that return then it’s not a very successful project.

Figuring ROI

The first step in using ROI to guide your business decisions and evaluate your past projects is to be aware of the investments you make and returns you see.

1. Estimate ROI. When you start a project (this can be a new site or simply a modification to an existing site) take a minute to estimate the costs in money, time and intangibles as well as the returns.
2. Track ROI.As the project progresses keep a record of the actual investments you make and when it launches the actual returns you see.
3. Evaluate ROI. After you’ve done this for a while you can use the actual ROI to refine your future investments as well as see which of your past project where the most successful

Guide Your Decisions

It’s pretty simple really. If you have 3 or 4 potential projects you can work on, estimate an ROI for each and work on the one with the best ROI first. In reality it’s not quite that simple since you often need to balance long term rewards with short term ones. Maybe you find that one project should cost little and net you $5,000 over the next two months and another project will require some time and money investment but yield $2,000 a month for years. Which to chose will depend a lot on your situation - your ability to make the investment and your need for immediate income. But considering the ROI of each option can still help guide your decision.

Evaluate Your Past Projects

photo credit: seeks2dreamWhy would you want to evaluate your past projects? Do you really want to know that you spent a fortune building a site that had meager returns? If you want to improve your future decisions then it’s vital that you understand the outcome of your past decisions. As an example, lets say that you find that a past project was more successful than you at first thought it might be. It required a few months of your time but the returns were far greater than you imagined. If you can do another similar project this information may allow you to make a greater investment (hire some freelancers to do some of the work) because you’re confident that the return will be there. On the flip side if you find that you’re spending a lot of time on short, inexpensive projects that don’t bring any significant return then you can avoid those types of projects in the future.

Some Real Life Examples

While running my “big successful site” I noticed another site in the niche that had some cool integrated eBay listings on their page. A little legwork and I found that they were using a very simple API through eBay’s affiliate program with Commission Junction. I was able to add the feed to pages throughout my site with very little work so I went ahead and did it even though I expected very little return. The feature was well received - though it was income generating for me the users found it helpful and treated the addition as new content. They also responded well to it and it produced hundreds of dollar of commissions a month for me. Very low expense but a high return taught me to look for opportunities like this in the future. .

On the same site I was also running the Amazon affiliate program. It also was a bit more difficult to add than the eBay program and I expected that it would yield good returns but the actual commissions from Amazon were minuscule. Because of the size of the site I was approached by Buy.com who wanted me to add their own affiliate program to the site. I spent days looking through their feeds and negotiating rates on the phone with their affiliate manager and in the end never even implemented the project. If I had looked at the ROI I achieved from the similar Amazon offer it would have been clear from the start that this wasn’t a good use of my time.

As an aside, I think the eBay offer worked better on this site because it offered up unusual items that were related to the content. In the case of Amazon I could offer up related books and DVDs but people looking to buy the books and DVDs would likely just head to Amazon directly. In the case of eBay people were discovering items they didn’t even know existed. This doesn’t at all mean that the Amazon or Buy.com offers won’t work well in other situations.

Wrapping it Up

Hopefully this series has given you an idea about how to take a more professional business approach to your online endeavors. I’m not suggesting that you become a slave to the ROI numbers. You should however, understand what the potential numbers on both sides of the equation can be and give some careful consideration to expenses and returns as you decide what you’re going to do with your online business.