As business people we are all familiar with the term, ‘return on investment’(ROI).
But I believe that this is only a part of the story; we should also be looking at ‘return of investment.’
When we make an investment, in this case of funds, we do so usually expecting a return on our investment sufficient enough to justify the expenditure. Often the focus is on the profit and not the initial investment. Whether it be an investment in coaching, services, in training, in new equipment or staff the investment is made in the hopes of, and with a focus on the return.
This thinking essentially treats the investment as a hopefully temporary sunk (i.e. unrecoverable) cost for the period of the investment. Often when business people invest, it is for a proposed return ‘on’ their investment, not necessarily the return ‘of’ it. They view their investment as ‘locked up’; as gone and focus primarily on the yield from it.
This is dangerous thinking as it creates a complacent mindset in regard to the investment made. It ignores the opportunity cost associated with having made it. Classically, if we invest $10 000 into X, then we cannot use it for Y; the funds are gone. Certainly, if an investment is viewed this way, where the focus is on the profit from, instead of the return of, the investment; then this type of thinking can stop or at least limit business growth.
A SMARTER WAY IS TO CONSIDER THE ‘OF’ AS WELL AS THE ‘ON’ OF OUR INVESTMENT.
This means viewing any investment as having two distinct phases; a defined payback period and then a return period. It is about viewing any investment not as a sunk cost but as a time-limited opportunity cost. Simply, how long will it take for our investment to be paid back so that those funds can be used again on something else? If we focus on the ‘return of investment’ then we are no longer treating it as a sunk cost but as a time framed opportunity taken up at the expense of others but which will come back to be reused in a defined timeframe.
If I pay a coach $20 000 for a year, I want to see a growth in my business sufficient to justify the investment of this money. If I see my business grow by $20 000 in the first six months not only do I have my investment back to use on other opportunities, but everything I make for the next six months can be viewed as profit only.
In your business when a client makes an investment in your services or products, what is your strategy to deliver to them a quick and efficient return ‘of’ their investment? If you have one in place and let people know about it, then you have a potent differentiator in your marketplace. One that few businesses think about and one which will make you stand out.
By developing a focus on providing your clients with a return ‘of’ as well as a return ‘on’ their investment in you, your services or your products, you will be serving them better and clearly be positioning your business as the one to be dealing with.