Return on Investment (ROI)

Return on investment, ROI in short, is a key metric indicating the financial viability and profitability of an investment. It is a ratio determined by the comparison between the investment and the net profit arising from the investment.

What are the benefits and limitations of calculating ROI?

Finances are an indispensable given in any business endeavor. Measuring cash flow and potential profits, as well as observing increases or decreases in tax obligations, interest rates, and other ongoing costs of business help determine the final annual profit. When it comes to new investments for a business, the observation of ROI can be a good indicator of the profitability of the investment.

ROI is calculated by means of a simple equation. First, the amount of investment is deducted from the amount of the expected profit. The result is then divided by the investment amount and multiplied by a hundred. The number you get from this equation is your ROI. The benefits of calculating the ROI for a specific investment are crucial indicators that allow for a determination of whether or not an investment is a viable option for a business.

This means that thanks to the ROI calculation and the potential return on the specific investment, a business will be able to calculate, estimate, and adjust other key metrics of a successful business operation. The bigger this number, the better the return on investment. On the other hand, a negative ROI would be considered a sharp indicator of a bad investment.

Where is ROI important and what are contributing factors?

Depending on how product development, product management, and marketing are organized within a business, a variety of language services can be required at different stages along the way. At what point and to what extent those services might be required is decided within the departments. These departments usually all have a budget to adhere to and a close collaboration might be necessary in order to determine where to implement specific language services.

The following language services are the ones for which ROI should be considered: translation, localization, transcreation.

These are the ones with the heavy lifting. They deeply influence factors like time-to-market, risk management, brand testing, launch dates, and the parallel introduction of products or services in new foreign marketplaces. There are other language services, like proofreading, reviewing, transcription, or editing, that might be necessary for a business interested in branching out into international markets. But these are more important for quality assurance and as such shouldn’t weigh too much into ROI when working with experienced professionals for translation, localization, or transcreation.

In order to calculate ROI for those specific language services, financial strategists, and collaborators from product development, product management and marketing can develop a strategy and timeline. These offer insights for the reduction in time and cost for saving in time to market when working with a language service provider that can handle high volumes, for example. They further allow for better mitigation of risks for big operations which also contribute to ROI.

The earlier a product or service launch can be achieved for a specific international market, the earlier returns on investment take place. On the other hand, the decision for localization instead of translation might result in higher initial investment, but increase conversion of high quality leads substantially. Meaning, the higher investment can greatly contribute to higher returns and should, therefore, be assessed carefully.

What business advantages does ROI offer?

In a data-driven world, metrics offer certain security in doing business. Risks should be minimized wherever possible. ROI offers more clarity and better strategic investment activity for companies. The assessment of when, how, and to what extent a return on the initial investment can be expected allows for tangible forecasting in a business environment.

The calculation of ROI for language services might initially seem a tricky task, but broken down into steps and divided among different departments it can add great value for budgeting and timing. Major decisions about when and where to launch a product or service first can be more accurately assessed with ROI calculation. ROI offers an additional degree of clarity for investment strategy and security for risk mitigation. If you want to learn more, make sure you get a free copy of our ebook on how to raise your return on investment for localization.