Return on sales relates to a business’s profitability. Nevertheless, profitability is tricky. In fact, there are many ways to see a profit. A salesperson will be happy if the sales bring in more money than it cost him. Nevertheless, he will not take into account all the company’s expenses.
Return on sales is also known as ROS. It can refer specifically to the profit that is left on the bottom line. The financial departments love this term. Nevertheless, is the return on sales the same as the profit margin?
Return on sales often corresponds to the operating margin. However, there still is a difference between the two of them.
ROS relates to the earnings before interest and taxes. The operating margin is the operating income after operating costs. Sounds confusing? Well, in short, ROS and operating margin are two profitability margins used to compare companies from different industries.
How to increase the return on sales?
Ok, so we know that ROS is a profitability marker. Then, how to increase the return on sale? Well, the answer is quite simple. Nevertheless, the execution might be a problem, you know.
So, in theory, to increase the return on sale, you should:
- Increase the price of your product
- Reduce your production and inventory costs
- Reduce the costs of selling the product
Nevertheless, you can’t just increase the product price through the roof. First, you need to try some comparative research. See what your competition is offering for that price. Maybe you can offer a more expensive product if you add a better warranty. Or make sure that your customer support is on point. So you can ask for more.
As for cutting costs, you might have to negotiate with your suppliers and partners. All in all, increasing the ROS is a game of tweaks. So, tweak it until you make it.
How is the return on sales calculated?
Return on sales is calculated from your business operating profit and net revenue sales. So, if you make $100,000 in sales and have $60,000 in expenses, your profit would be $40,000. Divide this figure by your initial revenue, and you get 0.4. Usually, the return on sales formula gives a percentage. So, multiply your final 0.4 by 100. The final result is 40%.
This return on sales in accounting terms means 40 cents per dollar. So, you make 40 cents for every dollar of sales.
Now, what are the return on sales advantages and disadvantages?
Return on sales is a financial metric that assesses the profitability of a company. Fundamentally, it tells you how efficient you are in generating profit from your revenue. Moreover, as you have seen above, ROS can also tell you how much profit you make per dollar of sales. That’s another good advantage.
ROS is important for creditors and investors looking to inject money into your company. They can compare your company to others from your industry based on the return on sales.
So, the return on sales brings a considerable evaluation advantage. Business owners can have a clear view of where they stand in terms of turnover.
The return on sales is a crucial financial ratio in some industries. However, its main disadvantage is that it does not apply to all trades.
ROS is only effective as a comparison metric within the same industry. So, the return on sales is not a universal ratio. Moreover, it doesn’t give you the whole picture.
What is the asset turnover ratio?
So, return on sales asset turnover – is it the same thing? Not quite. Return on assets and asset turnover are two different ratios.
The return on assets (ROA) measures how well a firm manages its resources. You calculate the ROA by dividing the company’s net income by the average value of the company’s assets.
By comparison, asset turnover is used to assess the revenue generated by the company’s assets. The main difference is that asset turnover is about income and not profits.
The return on assets is a profitability ratio, just like the return on sales. Asset turnover is an activity ratio. It fundamentally shows how much revenue you can generate from an asset.
Where does marketing investment fit in all of this?
When it comes to returning on sales and marketing investment, the ratio is ROI. Return on investment is the leading financial marker used in marketing.
So, return on sales vs return on investment? What is the difference? Well, it’s simple. You subtract the marketing costs from the sales growth. Then you divide the result by the marketing cost.
One of the best tools that can support your marketing ROI analysis is Whatagraph. It is an automated reporting platform that enables digital marketing agencies to analyze their results. Moreover, it automates the reporting with the clients.
Whatagraph will also help measure the return on investment from a marketing campaign. Apart from this, it can do some other pretty cool things.
Whatagraph makes data visualization a walk in the park. It gathers data from various digital marketing and social platforms. Everything is automated with a touch of a button.
The platform helps you make sense of all the information and assess the effectiveness of your marketing efforts. It will also generate easy-to-read reports for your clients.
You can compare the performance of different marketing campaigns. The platform enables you to always keep an eye on how your social media and websites are doing.
Whatagraph helps you track visitors, registrations, sales, and even your competition. Moreover, you can customize all your reports with your own branding. What is even more surprising is that you get to customize the reports with your own images.
So, if you want to emphasize a specific aspect of your campaigns, you can upload your own pictures. For example, if you’re preparing a report on your latest marketing campaign, you can add print screens from the campaign. It is a really cool feature.
On the one hand, it helps automate every data generation. On the other hand, it lets you customize the final reports. That’s nice.
What is even nicer is that you can add your own offline data to the reports. The platform provides custom data widgets. You can upload CSV or Excel files with any other marketing data from any other source. So, there’s virtually no limitation to Whatagraphs. If their API does not support a particular data source, you can add it manually.
Whatagraph pricing plans
All of these cool features come at a price. Whatagraph offers three pricing plans:
- Professional (from $119/month, billed annually)
- Premium (from $279/month, billed annually)
- Growth (From $699/month, billed annually)
Of course, every plan comes with extra features. For the Professional plan, you get pre-made templates and media widgets. You also receive some automation capabilities, live chat support, and a list of 8 integrations:
- Google Analytics
- Google Analytics 4
- Google Ads
- Facebook Ads
However, if you wish to pay for the Premium plan, you get 20 other integrations, including WooCommerce, Ahrefs, and Mailchimp. Moreover, you receive a dedicated account manager and a personal onboarding session. Furthermore, you get the custom branding feature, multisource reporting, and master template.
The most expensive Whatagraph plan offers a total of 37 integrations, including Pinterest Ads and Amazon Advertising. It also comes with a custom API function.
So, based on your business needs, it is up to you to pick one. All in all, Whatagraph is a marvelous choice for you. Your clients will love it.
However, it’s not all about return on sales or clients. A business is also about people. And while we’re at it, let’s talk about business health insurance.
How is your business health insurance?
Caring for your company implies caring for your employees. It’s not just about return on sales; it’s also about the people. Business health insurance is a good way of showing you care.
Basically, as an employer, you should purchase a certain business health insurance package. This package will cover a part of the cost of health for the employees.
Usually, a business health insurance package is less expensive than an individual insurance plan. This is mainly because the risk is divided by each member of the group.
Moreover, these health plans can also prove profitable to the employer. Why? Because the contributions are not taxable. So, you can offer health insurance to your employees as a benefits package. It shows that you, as an employer, value his/her abilities. This is also a good strategy for retaining the top talent in your firm.
You know, at the end of the day, these talents will make all the difference for your firm.
Apply for online college classes and learn more about return on sales
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Education is the key. We hope that our article on what return on sales is has helped you and inspired you to pursue a career in business. It is a wonderful world, and it belongs to aspiring people like you.
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