Let’s say that you have $1,000. Before you are a near infinite number of possibilities. You could take that money, go to the roulette table, and put all of it on black. Because that’s what Wesley Snipes told you to do. Based on this choice, you’d arrive at one of two possible outcomes. If you win, you double your money and you now have $2,000 in your possession. That’s a 100% return on your investment. If you lose, you’d lose all your money and you’d now have $0 in your possession. That’s a negative 100% return.
A Smarter Way to Invest Your Money
Of course, it’s probably not all that prudent to put all your money on a single bet at the casino. Maybe you can choose to sock that money away in a savings account that generates a humble 1% interest rate. At the end of the year, you’d have $1,010. You’d earn ten bucks. Big deal. Maybe you put in a mutual fund or use it to buy some stocks. The risk is higher, but you have the chance to earn more. Maybe you can get 10% (or $100). That’s better.
Under all of these circumstances, you can take a look back at your “investment” decision and calculate a very specific return on investment (ROI). There’s a concrete number to be determined. It’s black and white (or red, if you end up with a loss). But not all investments work that way, especially when you look at Internet marketing.
Investing in Your Business
What if we were to continue with this hypothetical example and chose to “invest” the $1,000 in an entirely different way? Let’s say that instead of letting that cash sit relatively idly in a savings account, we spent that money to get a new custom theme for a blog. And let’s say this blog has a fundamental purpose of generating income through advertising and other means.
Now, if at the end of the year, the blog earns $1,500 more in total annual revenue than it did the previous year, can we say that the $1,000 investment in a new blog design rendered a 50% return (you spent $1,000, so your net gain is $500)?
No, not necessarily.
Maybe that extra revenue came about because you blogged more often. Maybe you signed up for a more lucrative affiliate program. Maybe your traffic increased due to your increased social media efforts. There are too many confounding factors and a true split-test likely would not have been possible.
Isn’t That Just Spending?
Let’s consider another similar scenario. Instead of putting that $1,000 into mutual funds or using it to buy a custom theme for your blog, you spend that money on a cleaning service for your house over the course of a year. This way, you’re not spending your own time to clean your own house. This way, your time can be spent in other ways.
Maybe this saves you an hour or two of housework every week, so you spend that time growing your online business. Maybe you write an e-book. Maybe you focus your efforts on affiliate marketing. Maybe you grow your list. And through all of this, your annual income increases year over year. Can that be attributed to the cleaning service? Maybe. Maybe not.
What if you didn’t really spend that “extra” time on your business and you “wasted” the hour or two playing video games and watching movies? What if your income still increased year over year? Not too many people would say that watching movies and playing video games would have a positive impact on your Internet marketing success, but maybe it does. What if, because you enjoy your leisure time more, your brain is more creative and innovative and strategic when it does come time to work?
Playing the Long Game
Absolutely, it is imperative that you stay on top of your numbers if you want to run a successful business. You should know exactly how much your spending and how much your earning. You should work toward optimizing that equation to maximize your net profit. But you also need to recognize that many of the investments you put into your online business may not yield any returns right away and, even when they do, you may not be able to measure them.
When you pay someone to create a new blog design, when you hire someone to update your blog or rewrite your sales material, when you pay to boost a post on Facebook in hopes of gaining followers, you may be able to measure some differences in the short term. But the long-term impact for your long-term growth is much more elusive. Sometimes, you just have to trust you’re doing the right thing, measurement be damned.