How to calculate your ROI? Efficacy of using formulas

How do you calculate your ROI? This question has definitely come up among aspiring entrepreneurs. The economic side of any business includes this coefficient to analyze the effectiveness of the business strategy and its work as a whole.

It shows the net profit of the total revenue as a percentage. The sales profitability formula helps to find out how profitable it is to produce certain products by calculating the relationship between production and selling costs.

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Who needs to know how to find ROI?

It is important to say that there are several types of profitability for different job specifics. But for each of them, this indicator will be extremely important to analyze the effectiveness of a particular business model. Let's see who needs to pay attention to ROI and how it's calculated.

    1. Enterprises. The indicator is calculated based on the evaluation of the product by the entrepreneur or investors.
    2. Goods and services. Here, the budget spent for the project and its profit are considered, the profitability indicator is calculated both for a particular product or service and for the company in general.
    3. Assets. They look at the rationality of using a certain resource, most often money – is it worth borrowing or using the existing budget to sell the product?)

The calculation formulas are also different. The return on sales coefficient itself is called ROS and is found in this way: ROS = profit / total revenue * 100%

But not every cost-benefit analysis can be applied. What other formulas are there? Here's how to calculate return on sales as a percentage.

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Profitability calculation formulas and indicator analysis

I'd like to note a few more good reasons that would help make sure that using these formulas is important and necessary.

If you are on the way to entrepreneurship and are looking for investors, you should understand that, to launch any startup, you will need information that will allow you to decide if you want to invest in a project effectively. In this case, the profitability index shows the investor whether your offer is profitable.

Also, having a seasonal business or venture, whose efficiency can suffer with a hot winter or a cold summer, it is especially important to be aware of the possible risks in selling the product.

Calculating the total return on sales: Profit / Gross Revenue.

Calculating net return on sales: Profit / Revenue.

Profitability of products sold: CPU (selling price of a product) – PSP (total cost of this product) / PSP (total cost of this product) x 100.

Profitability of the production complex: OP (total productivity) / OS (company fixed assets) + OBS (standardized working capital).

Return on service sales: Revenue – Cost Price – Cost / Revenue * 100%

These formulas will help you to find the coefficient and then analyze the indicator to improve the company's efficiency.

Return on sales: normative value

Therefore, 20-30% speaks of high profitability, 2-10% is the average value at which the company operates stably, 1-5% will be an indicator of low profitability. And 30% or more indicates a super profitable company.

Do not forget that calculating return on sales without taking into account business development factors will not be entirely logical.

It may be very real that the high rate is due to the economy in the production of goods and services, which detracts from the quality of the product.

A low indicator usually indicates ineffective business management and a weak pricing strategy.

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We have already studied how to calculate the return on sales, now let's talk about how to increase the indicator and what needs to be done for this.

How to calculate your ROI?

What methods to use to improve your ROI?

If you think you have a low profit business then that is no reason to stop working on it. Error correction and a competent approach to solving each problem will help you to be more successful and more experienced in your business. Therefore, we suggest looking at which recommendations you have every chance of increasing the profitability indicator.

  • Expert motivation and their level of expertise… Insufficiently skilled workers can be one of the key factors in low profitability. In this case, you can carry out additional training, courses and special events for educational purposes. Professionals must be motivated to complete tasks, present monetary rewards for effective work.
  • prices. Don't be afraid to increase the cost of a product or service, also a slight increase in the average check will not scare off regular customers, but in an overall calculation it will help to raise the company's indicator. Try to sell packages of several products, the so-called turnkey solutions. Convince shoppers to higher value items and introduce a loyalty program in the form of bonuses, promotions and promotions.
  • Product analysis. Identify slow moving positions – we've already covered how to determine the profitability of sales for each product, so use this formula and analyze the product. It is also important to note that you need to monitor the availability of running units in the warehouse for your smooth sale. If they miss regularly, you lose a third of your profit.
  • Service improvement. Pay attention to the aesthetic component of your business: a beautiful design, an intuitive website, relevance and novelty will help you stay afloat and attract buyers. In business, customer orientation is important, the elimination of aggressive marketing, the transparency of your offers.
  • costs. Working with waste and production costs is considered one of the most effective approaches to increasing profitability. Reduce costs associated with storing, transporting, manufacturing and selling your product. Distribute the work among all employees so that you have the opportunity to leave a large number of people in the company.
  • Promotion. And lastly, try to get in touch with SEO specialists, they will help you to promote your site in search results, be a recognizable company in the market and increase the number of new customers.
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Conclusion

Today we talk about how to find your ROI and look forward to the best changes in your production. Undoubtedly, it is necessary to monitor this indicator, because when it comes to attracting investors, obtaining bank loans, solving operational problems and evaluating productivity, it makes sense to count on this coefficient.

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