Now that we know how to calculate ROI, let's actually calculate it

[tanjimajha12]

ROI can be calculated using the following formula:

■ ROI calculation formula

(Sales - Cost of Sales - Investment) ÷ Investment × 100 (%)

It will be easie r 0 netherlands cell phone number list to understand if you replace (Sales - Cost of Sales - Investment) with "Profit."

Simply put, you can calculate ROI by dividing the profit by the investment .

If the profit is less than the investment, the ROI will be less than 100%.

If your ROI falls below 100%, you are likely to end up in the red.



Example calculation
.

■ ROI calculation example

For example, the calculation formula for "if Company A invests 5 million yen and makes a profit of 10 million yen" and "if Company B invests 100,000 yen and makes a profit of 500,000 yen" is as follows.

Company A 10 million yen ÷ 5 million yen × 100 = 200%

Company B: 500,000 yen ÷ 100,000 yen × 100 = 500%

In this case, although the profit amount is smaller, Company B has a higher figure and is therefore more cost-effective.



ROI Benefits


The benefits of ROI include:

It is possible to measure the effectiveness of projects of different scales
You can quantitatively judge whether your business is successful.
Helps improve business


It is possible to measure the effectiveness of projects of different scales
ROI measures the effectiveness after calculating the profit and investment amount.

This has the advantage of making it possible to compare the cost-effectiveness of businesses of different scales.

Since you can see which initiatives are successful and generating revenue, even small businesses can benefit from continuing an initiative if it has a high ROI.

Being able to measure the effectiveness of projects with different policies and scales is a major advantage.



You can quantitatively judge whether your business is successful.
Cost-effectiveness is extremely important in marketing.

By measuring the effect of ROI, it is possible to quantitatively determine whether a business is successful.

The benefit of ROI is that it serves as an indicator for determining whether a project is successful or not.



Helps improve business
By calculating ROI and quantifying cost-effectiveness, you can not only compare results within your own company, but also easily compare results with other companies, which is another benefit.

It can also be useful for improving your business, such as concentrating operating costs if the ROI figure is high, or considering withdrawing if it is low.

The advantage of ROI is that it can be used to make important business improvements that affect the survival of your marketing business.



Disadvantages of ROI


While the benefits of adopting ROI are enormous, there are also some drawbacks.

The innovation dilemma
What cannot be measured numerically cannot be evaluated.
Get a better idea of ​​the ROI by knowing the drawbacks of each.



The innovation dilemma
There are two types of corporate innovation: "sustaining innovation" and "disruptive innovation."

Sustaining innovation is innovation that focuses on stable profits and aims to improve existing products to make them more powerful and functional in order to satisfy customer needs.

Disruptive innovation refers to innovation that changes the market by developing a product that has low performance and low functionality but is highly convenient.

Generally speaking, corporate management tends to invest in sustainable innovations that have a high ROI for shareholders.

On the other hand, there is a tendency not to invest in disruptive innovations that have low ROI.

If you focus too much on continuous innovation, you will be able to meet customer needs through product improvements by only improving high-performance, high-priced products.

However, as they continue to make improvements that increase performance and prices, customers will eventually move away.

This is because customers are afraid that they will be replaced by disruptive innovations from other companies that meet different needs.

There is also a disadvantage to focusing too much on sustainable innovation, which could lead to disruptive innovation by new entrants into the market, causing business failure.

In order to avoid the innovation dilemma, it will be necessary to develop new products as well as improve existing products.