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What Does ROI Really Mean To Entrepreneurs?

Return on investment should go beyond accounting – it’s about what’s really happening in your business, and if you’re spending money on the right stuff.

Ed Hatton

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Return on Investment or ROI is a percentage used to compare investment options or evaluate business plans. The formula is ROI = (Net Profit / Cost of Investment) x 100.

So, if you wanted to buy a business for R1 million and expected profits are R300 000, the ROI would be 30%. Among SMEs, the term ROI is widely used as an estimate of the likely return on the investment of non-financial as well as financial resources.

For instance, an entrepreneur could ask, “What return will I get from a new business campaign compared to potential losses from existing customers who feel ignored?” Typical investments are management time, floor space, quality upgrades, delivery capacity or scarce skills, and these are difficult to quantify in financial terms.

The return is not necessarily in cash either; market share, increased competitiveness, brand awareness and gaining first mover advantage are just some of the returns that may be hard to express in accounting terms.

But if it’s all so difficult, why should you bother with ROI? Without a ROI estimate, you don’t know if you’re making best use of your people, time, machinery and know-how. Could you use all these to more effect on another opportunity? Opportunity cost is the return you would have made if you did something different, and you can only assess which would be better by having some form of ROI.

The right measurements

Few SMEs will have the resources to do exact costing on indirect costs and returns, so it pays to develop a few rules of thumb to put values to things like management time, customer satisfaction, staff motivation and other intangibles so you can do a rough ROI calculation.

Sales and marketing initiatives are typical uses of ROI. You may want to expand your sales force or develop a branch structure, but should you rather move to online sales or build a reseller channel? You probably need to approve marketing campaigns to build your brand or gain incoming sales leads, and it’s tough to choose the right ones.

Related: How To Prove Your Marketing ROI

You have limited funds to spend on sales and marketing, so it’s wise to ask if you’re getting the best ROI for each sales team, channel and marketing promotion. A ROI calculation helps to evaluate existing marketing initiatives or sales models, and choose the right new ones.

The same applies to products and product ranges. Which are giving you the best ROI when considering issues like technical support and inventories needed? We all have ‘old favourite’ products that have served us well, but should we still be selling them? ROI could tell you.

Cost of products

Whether you manufacture or buy goods to sell, it’s all too easy to keep things as they are. With rapidly rising costs and a very fast-changing environment, that is not always a smart idea.

Questions you should be asking yourself include: What will give me the lowest overall cost of product, considering quality, reliability, speed of delivery and payment terms; which supplier gives me the most opportunity to maximise sales and what is the cost of being let down by a supplier?

Related: Give And Receive: The ROI On Incentives

Then examine alternative ways to get your products or raw materials. Long-term buying contracts, outsourcing manufacturing or sharing machinery and delivery vehicles may give you a much better return on investment. Many informal businesses form buying co-operatives to reduce their cost of sale.

ROI is a useful tool to assist decision-making. ROI in the informal sense, with some rules of thumb to make you think about the intangible costs and benefits means you can rely on reasonable information rather than having to fly blind. Thinking about return in the broader sense is a great way to make better decisions and build your business.

Ed Hatton is the owner of The Marketing Director and has consulted to and mentored SMBs in strategy, marketing and sales for almost 20 years. He co-authored an entrepreneurship textbook and is passionate about helping entrepreneurs to succeed.

Company Posts

4 Black-Owned Businesses Participating in This Enterprise Development Programme That Are Growing – Fast

The Department of Small Business Development (DSBD) and Property Point have joined forces to take 16 small to medium-sized, black-owned, businesses, through a life-changing enterprise development programme.

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The Department of Small Business Development (DSBD) and Property Point have joined forces to take 16 small to medium-sized, black-owned, businesses, through a life-changing enterprise development programme.

In its first three months of operation, this programme has already seen incredible results with an average growth rate of 27% per business,  R17,8million in contract secured and 21 direct jobs created. This is a unique collaboration in that it is set up specifically to encourage access to markets for the beneficiary businesses and is the first of its kind in the industry.

But who are the people behind the numbers?  Meet four out of the 16 business owners , Thabiso, Falvia, Malusi and Mandla taking full advantage of this opportunity.

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Entrepreneur Today

How WordPress Can Help Your Small Business

WordPress is an amazingly large platform filled with incredible tools from useful plugins to intriguing extensions. It’s a platform for bloggers, social media influencers, and increasingly, small business owners.

Josh Althuser

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WordPress is one of the largest content management systems available. In fact, it powers nearly 30% of all US websites. Its ease of use and a open-source nature has prompted the platform to become overwhelmingly popular.

For many, WordPress is an invaluable resource that makes website management simple and promotes their brand easily. It is Little Wonder then that so many businesses use WordPress to handle their website and online presence management. Even though it is very popular, learning WordPress is an entirely different task.

Not many small businesses can afford to have a WordPress developer. In that case, it is important for many owners to learn as much as they can about WordPress.

Achieving effective market growth

There are those who still wish to use traditional services but are usually dumbfounded by the price and time requirement for making custom websites outside of the platform.

The abundant array of tools and applications makes using WordPress simple but effective for market growth.

For many businesses just starting out, getting traction and marketing growth are very difficult and can be taxing experiences if done by hand.

Related: 7 Ingredients Of Small Business Success Online

With a platform like WordPress achieving a beautiful website and pushing a brand is much simpler and easier than trying to do everything yourself.

Optimising your website with SEO

One of the most important aspects of business writing on a website is search engine optimisation or SEO. WordPress fortunately comes with a number of plugins that makes SEO very simple such as Yoast.

This service scroll through text and automates the SEO process to make sure your content is pushed to the best of its ability while also giving your brand the most exposure it can possibly take.

SEO is a very taxing and tedious process for many small business owners and the WordPress platform makes it simple.

Monitoring your website and developing leads

There is also the issue of monitoring who is coming to your website and who was looking at your products. again, on the WordPress platform there is the Google analytics plugin which allows owners to analyze who’s coming to their website and for how long.

This can be used to determine if your marketing or branding is effective and can determine what things need to change to increase exposure.

For small business, exposure is everything and awareness is the key to a successful business.

Increasing site security

Keeping a site secure is another main issue for people who run their own website and luckily WordPress has a plug-in for that.

Vaultpress, the premier security plugin, keeps your website secure and in the event of a catastrophic failure it can restore the entire site.

Business owners often fear their website crashing as it would reduce the amount of traffic it could garner and may interrupt their business practice. The WordPress platform has many tools which prevent loss of data or breaches of security so that your business can continue to run smoothly.

The benefits of using WordPress

These tools, mixed with a host of other utilities, make WordPress the premiere platform for websites for businesses of any size.

With its integration software you can automate messaging, simplify marketing and, optimise the speed of your website to give users an incredible experience without the cost of a full development team.

The technological age requires that all businesses must have a website or at least a web presence of some kind. it has been shown time and time again that a website is the best way to make a big impression on the consuming public.

Related: 10 Online Marketers To Watch In 2018

Time, as it moves slowly forward, shows us that the world will revolve around the Internet and technology. A web presence then, is not just a good idea or a trendy notion, but rather imperative to stay competitive in the future. To that end, there is no better platform to create a website on than WordPress.

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Government Funding

New Fund For Small Businesses To Be Developed

Government has allocated R2.1-billion toward the development of small- and medium-sized businesses.

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Driven by the Departments of Small Business, Science and Technology and the National Treasury, it was announced during the 2018 budget speech that entrepreneurs could unlocking funding for their businesses through a new funding initiative.

What is the new Fund?

Minister of Small Business Development, Lindiwe Zulu, explains where the fund stands and how it will work:

“The Fund will be operational during 2018/19 financial year but the planned disbursement of the funding will be the beginning of 2019/2020 financial year.”

She says R1 billion has already been transferred to the Department of Small Business Development from the national fiscus.

“The Department of Small Business Development together with National Treasury and Department of Science and Technology are working with the Government Technical Advisory Centre (GTAC) to develop the architecture of the Fund where issues around the management of the Fund will be considered,” she explains.

Related: Government Funding and Grants for Small Businesses

Who will the Fund be for?

“The Fund is targeting high growth businesses as our research on the ecosystem shows that there is a lack of funding of enterprises that are at an ideation and early start-up phase,” Zulu explains.

Her department together with the other participating arms of government, will identify areas of collaboration across research, mentorship and training of enterprises on financial management.

“The work that is being undertaken now will assist government to decide on how the fund will operate, but the government is conscious of the economic environment and would not look at setting up a completely new structure that will add to operational costs,” she says.

Addressing parliament on the fund, the minister said the financial mandate of the fund will be informed by the exercise that is being conducted through GTAC.

“Government is looking at having this fund as a soft loan which will provide affordable finance to small businesses and the emphasis will be more on ensuring that the Fund is sustainable rather than profit maximisation,” she explains.

Related: 11 Uniquely South African Business Ideas

How to apply for funding

Contact the following departments if you would like to access a portion of R2.1 billion:

Department of Small Business Development

  • Address: 77 Meintjies Street, Sunnyside, Pretoria
  • Tel: (+27) 861 843 384
  • Email: sbdinfo@dsbd.gov.za for information on the department and its services.

Department of Science & Technology

  • Address: DST Building (Building no. 53) (CSIR South Gate Entrance) Meiring Naude Road, Brummeria
  • Tel: (+27) 12 843 6300
  • EmailIsaac.Ramovha@dst.gov.za or zama.mthethwa@dst.gov.za for information and brochures about the department’s scope and funding.

National Treasury (GTAC unit)

  • Address: 40 Church Square, Pretoria
  • Tel: (+27) 012 315 5944 or (+27) 012 315 5645
  • Email: info@gtac.gov.za for information from the Government Technical Advisory Centre who will manage the small business fund for National Treasury.

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