Do You Know every business needs tracking of how much profit they are getting when investing in the market? Because this profit they get in return after investing in the market, is known as Return On Investment (ROI).
It is very important for any business, (FMCG companies). Through calculating ROI every company gets to know whether they are going in the right direction of marketing or not.
Also, companies should inform the retailer if there is any benefit in doing business with them or not. This will help the retailer in building trust and bonding for the long term.
What’s in it for me?
HOW TO CALCULATE ROI :
The ROI is calculated in terms of three things- Income, Expenses, Investment.
1. INCOME
Income is a Gross margin. How much are you getting from your business, It is calculated by formulae – [ TURNOVER x MARGIN % ].
- Turnover is your overall amount of money any business is taking in a particular period of time.
- Margin is sales minus the cost of goods sold. For example, if a product sells for 100rs and costs 70rs to manufacture, its margin is 30rs. Or, expressed as a percentage, the margin percentage is 30%
2. EXPENSES
Expenses are your costs that are being done during the business. They can be of various types.
A. Salary- Salary of a salesman, computer operator, delivery men, driver. There is manpower that is needed in any business. They also need money for their living. This is given by the company as a salary.
B. Delivery- Delivery vehicle maintenance, vehicle fuel, vehicle depreciation, vehicle insurance. In every business, vehicles are needed for the transferring or delivering of stocks from one place to another. These vehicles also need various expenses in their regular interval maintenance, their fuel cost, their insurance. Also every year the vehicle value decreases, which is depreciation on the vehicle.
C. Establishment-
- Godown Rents– For holding of stock, collecting and storing them godowns are needed their rent is also a big expense.
- Office Rent- the offices for the setup of business are needed too. It’s cost also comes under expenses.
- Stationary or Electricity- these too are some of the costs.
- Market Cost- When the discounts or offers are provided to the wholesaler comes under this.
- Other Charges Too- There are various other costs too that need to be fulfilled. This also brings various expenses such as bank charges.
3. INVESTMENTS
Investment is the average stock holding. It is the amount of how much the company is investing in the work for a certain period of time.
Investments are done in various terms such as-
- Paid-up stock.
- Claims gave by the company.
- Market credit.
- Transit good.
- Credit balance.
ROI IS CALCULATED BY THE FORMULA-
[ PROFIT/INVESTMENT x 100 ]
Where,
PROFIT= INCOME- EXPENSES.
For example, if you had a net revenue of ₹30,000 and your investment cost is ₹20,000, then your ROI is 0.5 (or 50%)
HOW CAN YOU INCREASE ROI IN YOUR BUSINESS ?
ROI is a very important parameter for any business. But remember it is not the only parameter which needs to be focused.
There are various companies that only focus on ROI and when they notice their ROI is not improving with time they go into distress and their business fails.
If your ROI is not increasing don’t get too serious for it. With time, it will eventually increase. But there are various ways that can easily boost up your ROI.
They come under general things such as- Increase your income, Decrease your expenses, Keep your investment optimum.
Let Us First Talk About How You Can Increase Your Income :
A. Increasing Coverage – When the company increases the coverage that is the area where stocks to be delivered, their income increases with the selling of more and more stocks.
B. Selling Range- When you increase your selling range that will raise your prices or revenues, income increases automatically.
C. Selling Volume – When you start selling more stock at fewer prices at first it will eventually give the income. More and more stock will be sold and hence increases the income.
D. More Size And More ROI- When advertising the biggest products occurs, the sale will increase, and hence with this the income.
E. Category Expandability- When there are various categories, there will be vast choice or products and the retailer will eventually buy any product of their choice which leads to incoming money to the company.
Many companies put a limited category of products which doesn’t give retailers much luxury of choosing their product and hence this doesn’t bring much income in the company’s account.
So when the product category is much vast, the choice will be vast and hence there will be things the retailer can buy from you whatever they want.
F. Promoting Your Products- when it comes to business, the promotion of products is needed the most. This will lead to uplift your income. Through promoting your product it will reach more and more audiences and hence more customers.
(ALSO READ THIS BLOG TO AVOID BASICS COMMON MISTAKES IN STARTUPS)
Now Let’s Talk About How You Can Decrease Your Expenses :
A. Delivery Expenses- It May be possible delivery costs increase by vehicle route. Analyze and check how we can shorten delivery vehicle routes to save delivery costs.
Make delivery routes more efficient. When the delivery route is shorter the cost and tolls of vehicles will decrease and hence the expense can be decreased.
B. Delivery Vehicle- If you think that your hiring cost of a vehicle is increasing day by day. So you can buy your own vehicle to decrease the cost.
On the contrary maintenance cost is too much so you can switch to a vehicle for a certain period of time for a certain route and notice whether the cost comes down or not.
C. Electricity, Stationary Or Miscellaneous- you can decrease your electricity expenses and other expenses such as phones, the internet should be analyzed and think of decreasing them.
Costs other than the salaries of the salesman, staff can be decreased by various methods. These costs are an important one. The strong manpower is the one which makes your company successful.
Let’s Talk About How You Can Increase Your ROI Through Your Investment :
A. Invest Early- when you start investing early you’ll get more income with more time period.
B. Invest Regularly- Investing regularly in the market will lead the retailers to know your products more and this will help in increasing your ROI.
C. Increase Investment Periodically- with a certain time period, increasing the investment will help in expanding your business.
D. Diversify Your Investment- invest in various markets differently. This will lead to expanding your product categories too.
E. Link Your Investment With Your Life Financial Goals- What goals you have in your mind for your future. Link those goals and Put the margin on your investment.
F. Continued Investment Irrespective Of The Market – Whether the market is giving you enough return but still continue your investment in that market. Let it be a little investment but never stop it. If the investment will stop then your competitor will take your place.
There is a specific time when that market will give the income maybe seasonality covers these criteria. Various markets give the income with the season as well.
So this was all about ROI and the various ways to increase your ROI
FAQs
Most people would agree that, over time, an average annual return of 5 to 12 percent on your passive investment dollars is good, and anything higher than 12 percent is excellent.
Income is a Gross margin. How much are you getting from your business.
Expenses are your costs that are being done during the business.
[ PROFIT/INVESTMENT x 100 ]
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FROM- GWALIOR, M.P
