Let’s be frank about it, and let’s accept it.
We are in business because we want to make some money from it. Certainly, the more money we make, the better.
Of course, we are also in business for the customer. Whichever comes first in our rationalisation, it does not matter, since both of them are equally important.
For this instance of our discourse, maybe we can openly express our agreement to Friedman’s position that the true purpose of business is to make profits for its owners, of course, within acceptable rules.
We could not imagine a business being put up to lose. And the main evidence that a business is making money is the continuing replenishment and growth of the capital invested in it, whether money or talent. We call this item of replenishment as return of investment, also return on investment, or ROI.
In reality, business does not have to be castigated even if it aims for greater return. As long as it operates under the free market rules, which means no price manipulation, no price hoarding, no cartel, no monopoly, no insider trading, no falsity, the return that business gets will be regulated by the free movement of goods and services and the market will defend itself.
The dynamics of competition is the first line of social valuation.
Which is why, if the market moves freely, no business can force itself upon the market because competition will not allow it. If you think you can thrive with an unreasonable margin on the products you are selling and get a windfall, you are wrong. Your products and services first must serve the customer and must have value and use. You must deserve the price, and the profit, you are asking for.
That said, how much ROI must your business make?
First, your product or service has to have an intrinsic value. If you add to this the reasonable expenditure to move the product or service into the hands of the customer, you have the gross value of your product. The margin you put on top of this gross value will represent the return on your investment.
Sometimes, we call this the profit, in absolute terms. As a return on investment, it is expressed as a percentage of the gross value representing your total investment. ROI is a measure of how your business is received by your targeted market, and is best appreciated as a function of time.
How much ROI?
The benchmark for determining the amount or level of ROI to expect from a business will depend on a number of factors. It can be the industry; if the industry is a lucrative industry where the return in most industry players is, say, 25%, then that percentage is a reasonable expectation.
Or it can be based on some key stock market indices. At one point, the large companies earned 10%, with small companies averaging 12%. At another time, most investors compare returns from the S&P companies which made about 15% in 2010.
You care much about this return, being the business owner, as much as your potential investors do.
You can aspire for returns within the range of these published return rates, depending on your confidence level in your product or service offerings. You know that the success of your business in delivering the ROI to you and your investors will originate from the intrinsic value of your product and the intensity of your marketing strategies.
When you deploy your resources effectively and implement well-crafted marketing strategies in distributing your products and services, and the market responds well by gobbling up your offerings and asks for more, you can be sure nobody will question your ROI even if you gather a windfall.
Your customers are happy, and you, as well as your investors, are happy.
Would you like us to help you with your marketing strategies? Contact us today.