Let’s be honest. The word “investment” does not strike many of us as an interesting topic. We think of investments and hear stocks, bonds, real estate and other ways to increase our net worth. I mean, the definition of the term ROI is “the measure of gain or loss generated on an investment relative to the amount of money.”
But a return on investment really should be defined as the benefit to an investor resulting from an investment of some resource.
Why Should It Have a Broad Definition?
A resource could be looked at as simply money but there are other resources used from an investment perspective that can benefit an investor. There are two other forms of resources that are not included in the original definition that are important to entrepreneurs and business owners: time and energy. Without ROI, we have no clue on whether our efforts are even worth our time – or if our energy could be better utilized elsewhere.
They say time is money, right? Calculating what your time is worth can be debatable, but everyone would agree that their time is worth something. Doing an ROI analysis on time-based subjects such as chores, tasks and other to-do items will dramatically change your life for the better.
I sat down to figure out what my time is worth and came up with a value of $100/hour. That means that whatever I am doing better be worth $100/hour. If it’s not your strength and you don’t enjoy doing it, then you have to find a way to hire/outsource that task or to-do item to someone else.
Not too long ago, I was mowing the lawn and fed up with the work. It was taking up a ton of my time – and at what cost? Hunched over, drenched in sweat and out of pure frustration I pulled out my phone and started to search for lawn care companies. Why was I wasting hours when I could be doing other things?
I was seeing prices from $30-$50 a month to take care of my lawn. The ROI analysis was a no-brainer. I could spend $30-$50 a month on lawn care and save 4-5 hours a month in time at a value of $100/hr. That’s a significant amount!
My lawn needs mowing twice a month and it takes an average of two hours each time. My ROI analysis was pretty simple. I could waste four hours a month or pay a lawn company $60 a month to take care of my lawn. I personally value my time at $100 an hour and so lawn care would cost me $400 per month. By paying $60, I save four hours to work on my business or to spend time with family.
Your return on investment in regards to your time can also be calculated. As entrepreneurs, business owners, employees, students, etc. we all have some type of value for our time. But it’s not just time. Energy can be another factor for determining ROI.
When eating, for example, there is a big correlation between the food that you choose to eat and the type of ROI it will return when measured as energy. If you choose to eat a large lunch at McDonald’s, you will most likely return a negative ROI on your energy level. You will feel lethargic, slow and not focused to accomplish the rest of the day. Typically large greasy meals that have more carbohydrates will return a negative ROI on your energy. If you choose to eat a kale salad, though, you will actually notice that your body is producing more energy. Let me give you some examples of real-life ROI scenarios that I use:
- Choosing What to Eat for Breakfast
- Choosing What to Wear in the Morning: I calculated that I could spend 15 minutes every morning picking out what to wear to work that day or I could lay out my options the night before.
- What Time to Leave for Work Every Day Based on the Commute: How long will I have to spend in traffic?
Think about it. Investment is a great topic – especially if there is everything to gain in your everyday life.
What is your ROI?