Does data analysis affect ROI?

ROI - what do you need to know about it?

Return on investment, or ROI, is a key tool for assessing the effectiveness of financial ventures. It provides a measure of the profitability of an investment and allows a company to assess whether the funds invested are generating the expected benefits.

How do you calculate the ROI?

The ROI calculation is relatively straightforward and involves dividing the profits obtained from the investment by the total investment.

To calculate ROI, it is sufficient to subtract the total investment expenditure from the profits obtained and then divide this result by the total investment expenditure. The indicator's value can be presented either as a percentage or as a numerical ratio.

To calculate the ROI, the formula can be used:

ROI= Profits-Total Investment Expenditure / Total Investment Expenditure x 100

If the ROI is positive, this indicates a profit, while negative suggests a loss. For example, if the ROI is 70%, it means that for every zloty spent, we receive 0.70 cents of profit. A higher ROI suggests that the investment generates a satisfactory return compared to the costs incurred.

When assessing the profitability of a company's projects or activities, this indicator becomes an important decision-making tool. However, it should be borne in mind that simply making the success of an investment dependent on ROI alone may give too narrow a picture. It is also worth considering other factors, such as the length of the investment's payback period or the risks associated with a particular project.

Undoubtedly, however, calculating ROI should be a permanent part of a company's financial management process, enabling it to track the effectiveness of its investments and make sound business decisions.

By analysing ROI, a company can better adjust its investment strategy, assessing the profitability of projects while eliminating less profitable projects in favour of those with higher returns.

When is it worth calculating ROI?

ROI is worth calculating during the course of a particular investment, as it is a vital tool for assessing the effectiveness of that project.

This avoids a situation where a negative indicator signals that the financial outlay exceeds the profits achieved. Performing ROI calculations regularly enables close monitoring of whether the investment activities deliver the expected benefits.

ROI analysis is particularly important when deciding on allocating financial resources to long-term and complex projects. By knowing the ROI value, a company can accurately determine whether an investment is showing higher profitability than initially anticipated or whether it requires an adjustment in strategy.

As a result, ROI is becoming a key element of the investment management process, enabling better alignment of activities with business objectives and ensuring greater return on investment. Importantly, ROI obliteration does not require complex calculations, which should encourage stakeholders all the more to assess the effectiveness of investments using this indicator, among others.

How does correct data analysis affect ROI?

1. Discovering profitable business opportunities

By analysing trends and measuring specific variables, companies can discover market niches and anticipate threats before they arise.

This is very important, especially for those companies that operate in a dynamic and highly volatile environment. Basing business decisions on hard data results in an increase in the company's profits and thus also positively influences the ROI.

2. Employee management

One of the biggest costs companies incur is staff salaries. The efficient use of employee resources can be tracked by identifying busy periods. In addition to this, it is handy to measure how the cost of each employee compares to the profits they generate for the company.

Thanks to modern data analytics systems, such as Power BI or Microsoft Fabric, analysing the quality and efficiency of the HR department's work is considerably more accessible, and the appropriate allocation of employees and distribution of responsibilities also translates into ROI.

3. Merchandise management

Data analysis also brings several benefits to companies operating in the trade sector. It provides a wealth of information on stock levels, market demand for a particular type of goods or sales volumes in a specific region.

Thanks to the ability to share data in Power BI, all people involved in a project have access to information. Such a solution significantly streamlines work and increases efficiency.

4. Optimisation of marketing campaigns

One of the challenges of marketing is to reach a selected sector of the market when they are most likely to use a particular service/good. This can be done by measuring data collected internally (for example, sourced from an online shop) as well as externally (reactions from potential customers on social media).

Such a strategy lets you better understand your customers and optimise your advertising message and communication channels. All this will significantly help you to optimise your marketing investment. For more on how to improve your marketing efforts through data analysis, see our previous article.

5. Efficient use of the budget

When data from different sources is brought together in a single dashboard (such a capability is provided by Power BI), it is possible to determine exactly where to increase and where to decrease expenditure. But that's not all - advanced analytics can also help you determine how a budget change in a particular area (e.g. social media advertising) will affect your company's revenue and the effectiveness of other advertising channels.

This removes the need to rely on guesswork and allows staff from different departments to focus on developing the most effective solutions.

Does data analytics make it easier to analyse ROI?

Definitely yes, data analysis makes analysing ROI much easier. This is because access to the relevant data allows for a more precise calculation of the indicator and a deeper analysis of the components affecting the profitability of the investment. Here are some aspects that data analysis can bring to ROI analysis:

Precise financial data

Accurate data on profits and total investment is crucial for an accurate ROI calculation. Analysis of financial data avoids errors and provides a solid basis for calculations and evaluation of absolute profitability measurements.

Data segmentation

By analysing the data, it is possible to accurately separate the costs and profits associated with specific projects, products or business areas. This makes it possible to determine more precisely which investments are most profitable.

Tracking changes over time

Analysing historical data makes it possible to monitor changes in ROI over time. This, in turn, makes it possible to identify trends and assess the long-term profitability of investments.

Identification of factors influencing ROI

Data analysis identifies factors that have a significant impact on ROI. This can include marketing efficiency, production costs or market changes, among others.

Forecasting

Using data to forecast future financial performance lets a company make more informed investment decisions. Forecasts can consider different scenarios, allowing the company to better prepare for potential changes.

So, as the examples above show, data analytics is a key element of effective ROI management, enabling the company to more accurately assess the effectiveness of its investments and providing the information necessary to make sound business decisions.

Want to increase your ROI? Analyse your data with Power BI!

Widespread access to large amounts of data gives companies practically unlimited opportunities to use them. Analysing them correctly and drawing accurate business conclusions effectively increases the profitability of companies. Of course, for such analysis to be effective, good tools must be used.

One of these is Power BI, which is specifically designed for business analytics. It helps you to effectively visualise the data you collect so that you can extract even more valuable information.

The implementation of Power BI enables the quick and intuitive creation of interactive reports and dashboards, which facilitates the monitoring of key business indicators, including ROI. Thanks to advanced visualisation tools, such as charts, tables and maps, users can track changes and trends in the data, which assists in making sound investment decisions. Moreover, Microsoft Power BI also allows for integrating data from different sources, which is important for the comprehensive analysis of investments and their impact on the company's profitability.

Additionally, Power BI offers the ability to create advanced predictive analytics to forecast future investment performance. This functionality is becoming a key component of a data-driven strategy, enabling companies to adapt their operations to changing market conditions and maximise return on investment.