What is the ROI for customer centricity?
“Money that’s been invested once often returns several times” – but only if you’re lucky, it could be argued. In order to ensure that a successful investment isn’t simply a matter of luck, companies use the Return on Investment (ROI) metric which allows them to calculate whether a specific investment has paid off – namely, whether the company’s profitability has increased. There’s a similar metric for customer centricity.
Whether it be a long-established company, a start-up, a subsidiary, or a newly founded enterprise, the people responsible inevitably ask themselves what advantages a planned investment will bring. One famous example relates to the marketing budget: should it be increased to allow the funding of new social media initiatives or campaigns led by influencers, and thereby achieve a greater reach? But what if this doesn’t increase sales? As U.S. retailer John Wanamaker once said: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” But who decides whether a specific investment has increased profits or made a loss? The answer to this is provided by the Return on Investment (ROI). As a measure of how profitable an investment can be, ROI calculates the ratio of profit to expenditure and reproduces it as a key metric. The best thing about this is that the ROI can be used to calculate the profitability of a single investment, an entire company, or customer centricity.
What is the ROI?
The ROI (Return on Investment) is a key business metric that measures the profitability of an investment. It is used to assess the relationship between the profit or benefit achieved and the costs associated with an investment. The ROI is expressed as a percentage, and can help to compare the effectiveness and profitability of investments. A higher ROI generally indicates greater profitability, whereas a negative ROI suggests that this particular investment hasn’t paid off.
How is the ROI actually calculated?
The formula for the ROI is typically written as follows:
ROI = (Net Profit / Cost of Investment) x 100
This calculation might at first sound somewhat abstract, yet one should definitely keep an eye on the ROI if it’s important to develop a long-term and sustainable business strategy which makes commercial sense as well as being customer-oriented.
The ROI for customer centricity: Return on Customer Centricity (ROCC)
Just as the ROI tells you whether an investment has been worth it, the Return on Customer Centricity (ROCC) reveals how much value per customer has been achieved. But what does that mean? For example, if a larger budget is allocated to make your company’s strategy more customer-centric and this duly increases the lifetime value of a customer, the ROCC rises. Just like the ROI, the ROCC you’ve achieved by way of greater customer centricity or a specific marketing initiative must always be greater than the budget that you originally assigned for this purpose.
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