“If I Buy Your Product/Service, When’s My ROI?”

There’s only one thing in the minds of most clients when you propose anything to them – what’s their ROI?… ROI, or “Return-Of-Investment”, literary means when they can get their money back, after they “invest” a payment into whatever you’re proposing to them. It’s a rather crude way of putting it, but that’s the reality of the business world.

ROI – Literally Vs. Reality

The letter “R” in ROI stands for “return”, literary means the recoup of an initial investment. The investment here generally means the money paid to purchase¬†an asset, which can then be used to generate more income. Hence, the income generated by the asset to offset the initial investment is called the “return”. So when clients enquires about their ROI, they’re actually asking how long before they earn their initial investment back.

The same can be applied when purchasing services (intangible) in place of an asset – a tangible product. In this case, the client pays a service provider for services rendered to help elevate their income. Hence, ROI here stands for the amount of time it takes to earn back what they paid the service provider.

A typical example would be a taxi driver. He invests X-amount of money to purchase a car (a tangible asset). He then uses this car as a taxi to sell transportation services to his passengers. So the amount of time it takes for him to earn back X-amount of money is his ROI. Beyond this point of ROI, whatever he continues to earns from his transportation service becomes his nett profit.

Henceforth, the enquiry of ROI is actually a question of the amount of time it takes for his initial investment to be fully paid up by the investment. Obviously, the shorter the time, the more attractive it is.

Is It Easy To Define The ROI For Any Investment?

The example of the taxi driver above is pretty straightforward. All you need to do is to estimate the amount of money you can potentially earn per day driving a taxi. Then divide the initial investment (purchase of car) with the potential daily earnings, and you’ll get the total number of days until ROI. Pretty straightforward, right?…

However, in real life, not everything is as simple as it seems. Factor in the business licence and taxi permit fees. Then add in the operational costs, like fuel and car maintenance. And finally, the depreciation of the car value. Total up all these additional costs to your initial investment (based on the amount of time used), and you’ll get your actual total cost over the said time. You’ll probably find that your ROI has been doubled, maybe even tripled.

If it’s already difficult to define the actual value of a tangible asset, it’s even more difficult to define the actual value of an intangible service. For example, how much value is branding consultancy worth? Is it the same value as the amount of money you’ve already paid for the service rendered?… Is it worth even more?… If so, how much more?…

Advertising Vs. Branding

It’s much easier to value advertising than it is to value branding, since advertising is more or less directly related to sales. When you commission an advertising campaign, you usually have a well defined objective and timeline. It can be something as simple as achieving a sales target within say, six-months’ time. So if your sales target is the same amount of money as what you’ve paid for the advertising campaign, then hitting the target means you’ve achieved your ROI. If you hit your target in three-months’ time, then your time-to-ROI is three-months. Any additional boost of sales for the remainder three-months, or even after that, as direct a result of the successful advertising campaign, is the nett positive value that you harvest from the payment that you made into the advertising campaign.

Now advertising and branding are two totally different animals altogether. Branding is less well-defined than advertising. Advertising is literary creating an artificial “high” by boosting the otherwise “normal” sale. Once the advertising campaign is over, the artificial “high” will eventually come back down to it’s original level.

Branding, on the other hand, is slowly building up your brand’s exposure. The more exposure you have, the more reputable you become. And the more reputable you become, the more likeable you’ll be. You see, a branding endeavour isn’t an overnight affair. It takes years of hard work and persistence to build up a brand.

So How Are Advertising And Branding Related?

The action (or the vehicle) necessary to bring about a branding exercise is usually the advertising campaign itself. Not just one, but the sum of all the advertising campaigns, all working towards a common branding goal. As you can see, advertising campaigns itself is merely the means to achieve the overall branding goal. Henceforth, you mustn’t allow each of the advertising campaigns to run their independent courses. They all need be working towards a common branding direction.

The brand is the strategy that you use to plan the individual tactics of execution of your advertising campaigns. Yes, you can run independent advertising campaigns. But if you want effective accumulated results, then you’ll have to plan so that all of your advertising campaigns point towards a common branding goal.

Then What’s The ROI Of A Branding Exercise?

What if a potential client asks you what their ROI will be should they decide to engage you? How do you quantify the return? Is it the total sale over a fixed period of time?… Well, not exactly…

First and foremost, branding exercise is a long-term investment to improve on your brand’s core value. Remember exposure = reputation = likeablility? Well, at the end of the day, the more likeable you are, the higher the value of your brand will be. And this will indirectly boost your sales up.

Important note – indirect increase of sales… This is not something that you can measure quantitatively. Especially if you’re basing your decision on whether or not to engage a branding consultant. What you can be sure of, is that monetary success will follow a successful branding exercise. However, branding exercise isn’t something that you simply sit back, and let the consultant do all the work. It’s has to be something that’s of value to the client, that the client holds dear to. And more importantly, it’s also something that the client themselves need to actively get involved in.

To Sum It All Up

Remember, you engage a branding consultant to guide you on your branding exercise, not work on your branding exercise. Regardless how much you’re paying the consultant for his/her work, you have to take ownership of your own brand. And most importantly, the understanding that branding exercise is a long-term investment. You don’t get to reap your harvest overnight…

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