• http://www.alanmitchell.com.au alanmitchell

    Hi George,

    You’ve hit the nail on the head – ROI and spend are two opposing forces and are therefore impossible to achive together. As you point out, it’s better to aim for the ROI first and see what volume the market dictates.

    One scenario I can think of which might oppose targeting ROI first, is when spend is very low and the client’s fixed costs are high, such as salaries, rent, licencing etc. In that case, it may be better to aim for a certain revenue and see what ROI can be achieved, just to keep sales coming in. After all, there is little point going to great effort and expense to hire a PPC agency if they are only spending $100 on clicks because of an unrealistic ROI target.

    Cheers,
    Alan

  • http://www.rimmkaufman.com George Michie

    Good point, Alan.

    Developing brand awareness and a customer base is expensive and very few businesses make a profit out of the gate.

    That said, spending money inefficiently can’t be a long-term strategy. Google’s self-management tools have come a long way for the small advertisers and need to continue to evolve. Whether hiring an agency or dedicating employee time, if the program can’t be cost-effective including the management costs, it can’t sustain.

  • http://priorityresults.com haugenbrian

    George, this was a really good post. Thanks for reminding us that gross margin dollars are a separate consideration from hitting a ratio target. I also think it’s interesting that many marketers love to talk about ROI without even knowing what it is. It seems to me that a common misconception is that ROI = total profit dollars, which of course it doesn’t. I’ve got a blog post that expands on that idea here: http://priorityresults.com/blog/what-is-return-on-investment-roi/

    Thanks again,
    Brian