Return on investment. These three simple words are so fundamental to the running of a successful business, yet actually calculating it can be surprisingly complex.
At face value, it seems like a fairly simple equation, ROI = Gain from Investment – Cost of Investment.
Learning to think in percentages is vital in the world of ROI as simple face-value figures can be misleading. If investment A yields $5000 and investment B yields only $100, it may seem at first glance that investment A had the better ROI. However, if you dig a bit deeper and learn that investment A required a $400,000 input and investment B only $50, the tables are quickly turned. The ROI for investment A is 1.25%, whereas for investment B it’s 200%. As we indicated before, percentages are everything.
In addition to thinking in percentages, understanding time is also vital when calculating ROI. Your profits and losses are calculated on a yearly basis, and therefore your ROI should be as well.
Lots of you might be questioning how this relates to your business, but believe us when we say that it does. All of your costs need to be thought of as investments and the way they affect your bottom line as the impact upon your overall ROI. Wages, staff time & productivity, disruption & frustration, systems & processes, technology, training & support all fall into this category.
Keeping track of all this – and thus being able to properly calculate the ROI for any potential business decisions – may seem overwhelming, but it doesn’t have to be thanks to a range of fantastic Enterprise Resource Planning (ERP) tools available today. ERP systems like MYOB and Sybiz Vision enable you to gain a complete understanding of how your business interacts and operates, and thus empowers you to make better decisions to boots your overall ROI.
To find out more about the murky world of ROI calculation and how ERP systems can help you out just get in contact with us. We love helping people navigate these tricky waters!