Factors Affecting Return On Investments

A common question in many entrepreneurs’ minds is how to improve the overall return on investment (ROI). Although many things have changed in the past few decades to transform the business world, the factors that determine, affect, and streamline a company’s ROI have remained the same. Today’s article will discuss these factors.

Market Share

According to Alan Safahi Orinda CA, a successful startup owner in San Francisco, market share is one of the most significant determinants of your business ROI. When your company achieves a higher market share, it has a higher profit margin. At the same time, it has higher-priced products with reduced marketing costs.

Companies with a market share above 35% earn thrice than businesses with less than a 5% to 7% share on the market. Economies of scale, management quality, and market power contribute to market share.

Product or Service Quality

Product or service quality is the second-most critical determinant of a business’s ROI. For example, when you have higher customer satisfaction rates, you will have repeated business, increased sales, and higher ROIs.

According to Alan Safahi, entrepreneurs must ensure superior product quality and high market share. Even if the quality is reasonable and the market share is high, you will have increased ROIs. On the other hand, companies that produce high-quality products with low market positions have lower ROIs.

Research and Development (R&D)

Research and development spending is a critical factor that affects your company’s ROI. A high market share is directly proportional to high research and development spending, increasing overall company sales and generating revenues.

According to Alan Safahi Orinda, profitable businesses invest more of their revenues and earnings in research. The positive relationship between R&D and ROI reflects this kind of reverse causation — i.e., higher ROIs encourage entrepreneurs to invest in research and development. Remember, investing in R&D increases the overall return on investments.

Marketing Expenditure

In contrast to product or service quality, market share, and research and development expenditure, which are correlated with ROI, marketing expenditure negatively affects returns on investments.

When you have a high level of marketing expenditure, it eliminates ROIs for your business. Therefore, you need to increase your revenues with product quality and market share.

Once you achieve your goals and have a surplus amount, you can spend it on your marketing strategy. Alan Safahi says it does not pay to promote a low-quality product.

Likewise, sellers of premium-quality products may inflict severe penalties on weaker competitors by improving the level of marketing costs. Therefore, instead of focusing on marketing your low-quality product, it is crucial to spend less money on marketing to promote your premium-quality product.

For example, you are less likely to increase sales when you spend $1,000 on social media to promote an average-quality product. On the other hand, when you spend $500 on social media marketing to promote a quality product, you are more likely to generate leads and increase sales.

Originally Posted: https://alansafahiorindaca.wordpress.com/2022/07/17/factors-affecting-return-on-investments/