Whenever your company makes an investment, whether it’s buying equipment or hiring training for your team, it’s a cost. To find out the return on this expense, that is, if the investment was worth it, a metric called ROI – Return On Investment is used .
In this post, we’ll show you how to calculate your company’s ROI and how to use it to guide your marketing and sales investment decisions.
Why calculate ROI?
In companies there are two types of expenses: expenses and investments. Expenses are those expenses necessary for the operation: electricity bill, rent, condominium. Investment expenditures are those that contribute directly to the company’s profitability: personnel training, acquisition of new equipment, marketing and sales strategies, etc.
Knowing how to calculate ROI prevents you from throwing money away by investing in strategies that do not deliver the expected result. It serves to measure the outcome of marketing actions and to identify the payback period of these actions.
Another function of ROI is to guide the decision to invest in new business or projects, as it indicates the potential return of the contributions to be made.
How to calculate ROI?
The ROI is calculated from the following formula: (Return on Investment – Cost of Investment) / Cost of Investment.
Let’s say your current sales result is $400,000 per month. After a series of training sessions, which cost $50,000.00, the application of new techniques cost monthly sales to double, reaching $800,000.00.
Applying the formula, we have: (400,000 – 50,000) / 50,000 = 7 That is, for each real invested we have a return of $700. That is: the return on investment was 700%.
How can calculating ROI drive the decisions in your business?
Resources are increasingly scarce and one of the top concerns for managers today is finding ways to cut costs. However, care must be taken to ensure that the cut does not end up spending on investments that bring returns to the business. ROI can help you identify where to spend your budget to maximize results.
ROI can be calculated for an entire company, for an industry or for a specific action. It allows you to evaluate the results of a training or predict the results of a marketing campaign.
With it it is possible to track the achievement of goals, both immediate and long-term actions, set more coherent goals and identify the return period of each investment. With objective projections, it is much easier to make safe investment decisions with real return possibilities.
However, it is good to know that more important than setting goals that are consistent with reality is keeping track. This will make it possible to correct the course whenever the situation demands it. Also be aware that ROI in some industries may vary over short periods of time, mainly due to seasonality (increased sales on certain dates, for example).
Now that you know the importance of ROI for marketing and sales investment planning, answer: Do you know how to calculate your company’s ROI? Do you have any doubt? Leave your comment.