How to Calculate ROI

ROI = (time + money spent to create + support an offer) – (time + money received for an offer)

How do you subtract time? You put a dollar value on it. Your time might be worth $100/hour or $500/hour or $10,000/hour. Let’s get something straight here, though: YOUR. TIME. IS. $$$. You are not free. If you’re not already paying yourself a decent salary, this is your sign that it’s time to start. If you have a team putting their time into creating products and services, you can use their salary to determine the hourly rate.

I want to call out here that you need to include the cost of what it takes to support your offers.

Scenario: Your product is incredibly financially profitable but it requires you to have a team of 10 full-time people to support it. Your financial profit of the sale of the product is wiped out by the cost of the support – and your time is probably taxed managing a support team, which is a lot of people and outside your zone of genius. In this scenario, your options are:

1. Stop offering that product

2. Find a way to reduce the cost of producing that product

3. Find a way to change that product so it doesn’t require as much support

4. Outsource the support to a lower-cost service provider

5. Offer the support at an additional cost

6. Charge more for that product

The ROI on your offers should be either bringing you more money or time, or moving you strategically toward your goals.

Scenario: Your service is making decent money, but you have to show up - in person - 40+ hours per week to get paid what you want. You also are currently only working with clients you were able to pull over from your last job, but they drain your energy and you often think about quitting. Your financial profit isn’t worth the time it takes you to provide it, and is not moving you closer to your goal of working only with women making 6-figures or more. In this scenario, your options are:

1. Stop offering that service

2. Find a way to provide that service in a group setting to reduce the time it takes you to deliver it

3. Limit the spots available for that service and use your newly freed up time to work on creating a service that’s more in alignment with your goals

4. Hire someone to provide that service while you spend your time with only the clients you want to be working with

5. Charge more for that service so you can make the same amount of money with less of a time investment

A note on prices: The prices for your offers don’t need to just be a comfy margin above the costs. They need to represent the value that your offers provide. Will your software 10x revenue for your customer? Then your offer should be priced to acknowledge the massive financial return your customer will get. Will your mind-blowing tattoo skills bring countless compliments and priceless joy to your customer? Then your offer should be priced to reflect an investment worthy of that joy. Don’t underestimate your value.

A note on physical assets: If you have expensive physical assets in your business (such as machinery or buildings), you also need to take into account in your ROI calculation depreciation and when you'll need to make your next large purchase to keep your business running smoothly.

ROI will give you incredibly valuable insights into where to focus in your business IF you include evaluations of money, time, and goals. You don’t have to give these three components equal weight, but you do need to understand where  your offers stand with each of them. If you do, ROI can be leveraged as a growth accelerator, and really as a guidepost to make sure your business gives you the money, time, and joy you set out to create as an entrepreneur.