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Measuring ROI: A Costly Mistake Made By Many

By Michael Zipursky

Most people are scared to make a purchase.

$5 or $10 isn’t a big deal, but as soon as you get over that magic threshold where the amount becomes something you have to think about – things change.

The human mind works in strange ways. It seems even if the ROI (return on investment) is to be greater than the cost…. people still find it hard to pay.

A recent meeting I had with a client is a good example…

We’re running an online marketing campaign for this client’s firm in a very competitive industry. So far the results achieved have been nothing short of spectacular. We’re talking about ROI in the 6 to 1 and higher levels. That is, for every $1 they invest in the campaign they’ve generated $6 back in revenue.

My recommendation to them is that it’s time to increase the campaign budget. Why? Because if you know you’re going to get back more than you’re putting in, it makes sense to start to scale the campaign and drive more revenue.

But this company finds it difficult to proceed. And they are not alone.

In many situations companies and people have a hard time putting their money into something even when they know the potential to earn back many times their investment is great.

While this kind of thinking is understandable… it’s also flawed. Why? Because…

It holds back the potential for greater success.

Another example I can share with you is our Momentum program. People from all over the world have bought it. The ones that have share their feedback with us and we’ve received a lot of praise for it.

It’s helped many people build more successful consulting businesses. They gain more confidence, have the tools and knowledge to increase their fees and work more effectively with their clients.

Nevertheless, I’m troubled when I think about how many people want to buy the Momentum program but hold off because they can’t get past the investment they need to make. What I mean is they don’t think about the potential ROI they’ll get out of it.

If they billed just one more hour from a client, or landed a single project, or began working more efficiently …

Even a single one of those would give them a great ROI for their investment.

This post isn’t about our course however… it’s about asking you to see beyond just the cost and always consider what the potential return on investment will be.

Doing this will not only help you become more successful in business and in life, it will also help you to identify, recommend and execute more opportunities for your clients.

Wishing you great success.

13 thoughts on “Measuring ROI: A Costly Mistake Made By Many

  1. It sounds like you're describing the behavior of risk avoidance. For the most part, everyone from the Vegas gambler to the corporate CEO has an internally defined, subconscious investment vs risk threshold. In most cases we are comfortable investing up to a certain point with the potential of a significant ROI, but once the investment amount crosses that internally defined line, we balk and hesitate, regardless of ROI. To overcome this hesitation, we need to address our customers' risk tolerance, and discover what's really holding them back. We may learn that it's not the customer's reluctance to invest beyond a certain amount, but rather their uncertainty with the 'potential' ROI. Typically the bigger the investment amount, the more the ROI gets scrutinized.

  2. Bart – well said and I believe this to be the exact case.

    However, I have also found situations where there is clear evidence that a strong ROI exists (and it's practically for certain), yet the mind holds people back…many of us face this at one time or another in some situation throughout our lives.

  3. Pat Keys says:

    Great post. I've had this issue as weell.

  4. Great post Michael….I have encountered similar issues and I find having testemonials, with contact numbers for satisfied clients, who have agreed to wax lyrical about the ROI/benefits, helps alleviate a stubborn mindset.

    • Ian – those definitely help and are great thoughts on tools to use. Thanks!

  5. I find this right on the money. I would add that a similar situation has been seen with savings. People will drive across town to save 20$ on a 40$ item however they will not drive to save 60$ on a $1,000 item as the perceived savings is less. It doesn't make sense to me however we all do it. Michael I like your ROI example if you ever want a free coffee to discuss what you do and if I can benefit from it send me an email

  6. You nailed it.. this is especially the case in the MENA where I am currently based. They can't get passed the cost to see RoI. For them the cost, if it is big, and for such an "intangible" or, as they sometimes say, "unquantifiable" entity as consultancy, is hard to envision even if it entails a big RoI. You need to seel them something they can grasp mentally, a website, a product or anything and, the way I do it is to re-package these products including my consultancy fees.

  7. Michael:
    Everybody struggles with this.

    I think fail92fail has hit on the psychology here. It's because many businesses, especially small ones, still think like consumers.. they can't understand the concept of value unless it's tangible. The amount of hours that go into making a widget are immaterial to them: The price of the widget is.

    So when you provide a service, they see only the hours you have billed for — like a plumber. The 6 to 1 ROI doesn't register, largely because they think they had something to do with it as well as you.

    As Fail points out, if you sell someone a website, they can look at it every day and feel that they have had their money's worth in an ongoing way. But if you sell them an intangible like consulting services, they can't make the leap to recognizing that. They see it as a one time thing.

    That's why you see people in the info-marketing world lay on ever more "bonuses", and freebies that have "values" attached. ("You get a $397 value for only $97!") It's a way to take buyers over that mental gap.

    Maybe the solution for consultants is to emulate the info-marketers — provide a base service, and then throw in extra services for a low cost to get them up to what they would have done any way.

    Or use a combination of billing and percentage of results. Some consultants are doing that, although it has to be carefully controlled so that you both agree on the "results".

    • Tony! Some great thoughts there.

      The business example I used in the post centered around my recommendation to a client that they increase their marketing spend – because the results they were generating from the campaign were very positive and profitable. It's interesting, because it wasn't consulting services that were being promoted, but just that they put more in to get even more out.

      I agree with what you and Fail are saying about tangibles vs. intangibles and I suspect this was part of it. The other point you raised about helping to get over that mental gap – that was probably the bigger issue with this case.

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