High ROI is Costing You Money

Ian Lurie Jun 21 2016

In marketing, high return on investment isn’t always a good thing. You can increase ROI by narrowing your audience: Focus on people you know will convert. Spend less and less per conversion. Voila.

That’s expensive, flawed reasoning. It restricts access to your marketing world:

High ROI, Low Revenue

Let’s do the math:

1,000 customers
$100 revenue/customer
$10 cost/sale
$100,000 revenue
10:1 ROI

Nice!!! You spent $10,000 and earned $90,000. You get a raise.

But what if you start expanding, testing entirely new audiences? Or if you invested marketing dollars to increase influencer visibility? Make a few (careful) bets: Bid on and optimize for new, different keywords. Try a whole new channel, like paid social media, and target influencers. One way or another, make a deliberate effort to expand my audience. Try to become significant to new tribes.

The result:

Lower ROI = Higher Revenue

This example assumes I can make money at a 3:1 return on investment. Insert your numbers as required.

Again, the math:

10,000 customers
$100 revenue/customer
$30 cost/sale
$1,000,000 revenue
3:1 ROI

A $300,000 investment returned $700,000 profit.

Focus on 10:1 return and earn $100,000. Or aim for 3:1 return
and have a shot at $1 million.

Great marketing invests in new audiences. Eventually, you have to make that move. It’s risky. But marketing without risk is called “stagnation.” It feels safe, but it’s not. It limits your universe of potential customers, sacrifices growth and hurts revenue.

If you want to try it: Set aside a little bit of your profit for marketing growth. Every week, bid on a few new keywords. Try a different channel. Answer a different set of questions.

Think beyond ROI preservation to profitable revenue growth. Balance the two for more effective marketing.