Investing VS Business

ROI of digital marketing compared to traditional investing (e.g. 500% ROI vs 8% in the index)

Today, I’m going to compare traditional investing and growing your own business with digital marketing.

If you’ve looked into investing into something like a market tracking index fund, you know that the average return typically is around the 8% mark. 

And while 8% is still an incredible return if it’s compounded year after year, it’s nothing compared to the ROI you can achieve through active investing, or in other words – growing your own cash-flowing business.

The best way to explain this – is with an example.

Let’s say we roll up our sleeves, and commit to going all out with growing your business over the next 12 months.

And let’s say we allocate an advertising budget of $10,000 per month. If we generate $150,000 in extra revenue per month from that ad spend, that would be a ROAS of 15 – or 1500%. 

And if you run a great business and have terrific margins, it should be a mind-boggling net return overall.

Now, many people would compare that with the returns of great investors like Warren Buffet and Peter Lynch who have managed to return 20 to 30% over their careers. And while it’s a lot of fun to play the comparison game, it’s actually a terrible comparison because returns always go down as the money pot gets bigger. And these people are managing billions of dollars.

But for a service-based business that’s not generating billions in revenue, massive returns are absolutely possible. They are very realistic with a carefully structured growth system.

So what is it that stops owners from growing their businesses? There are some very legitimate reasons and some that are not so logical.

A legitimate reason would be that you just don’t want to grow, and that would be totally fine. And I have nothing to say about that, except that you probably shouldn’t be listening to me!

Another reason might be cash flow constraints with some business models. Not every business gets paid quickly, so that can sometimes be a reason to be a little careful.

Another reason would be that you’ve already captured the whole market, so there is no one left to market to, which let’s just say – is very rare!

And of course, as we talked about previously, there are always operational bottlenecks. But since those are fixable, hopefully, those won’t be an issue in the future.

But more commonly, it’s due to the big elephant in the room, which is the big fat question – what if it doesn’t work and I lose all my money?

And while that appears on the surface to be a logical concern, it actually doesn’t make any sense at all when it comes to digital marketing. And that’s because of the level of dynamic control you have.

With digital marketing, unlike traditional advertising – you have total control over your daily budget and you can pause or end a campaign with 1 click. In addition, you can literally test dozens of angles and variations dynamically as you get feedback on what’s working or not working.

So you don’t just go from zero to turning on a switch and spending millions of dollars. Every campaign we run, we start very slowly, and only scale when we can actually see the client is making a massive ROI.

For that reason, the risk is minimised. 

Finally, I’ll end with this – I truly believe we’re still in a golden age of sorts when it comes to easy growth for service-based businesses. I say this because the level of digital marketing sophistication of the average local business is still very low. 

And that gives you a massive advantage if you’re willing to put things in motion and start building your digital assets. I’m not sure how long that will last with rising ad costs and the democratization of online tools, but as of right now – it’s still a gold rush.

Until next time!