There are many ways to measure whether or not your entrepreneurial venture is succeeding. A profit every month, for example, is one measurement. To calculate profit, you simply need to subtract your expenses from your income. If it is positive, you did well. Return on investment, or ROI, is another way. ROI is more specific, though. It takes a look at every investment you make and helps you decide if you should move forward with it or do something else. Here are three things you should know about ROI.
What is ROI?
ROI can be roughly calculated by dividing the projected annual profits by the total investment cost. The number that results is arguably the single most important factor of starting any business. Initially, for example, you are going to make an investment in your company before you get started. Whether that investment comes from your savings, a family loan or an angel investor, you have to figure out how much profit that money is going to return. While estimating the profit figure without selling one service or product is daunting, it is a starting point. You can figure out your expenses by adding up equipment costs, marketing expenses and space rental. Then, you can estimate how much profit you need to or want to make per dollar invested. This gives you an idea of the viability of your business idea.
Without Positive ROI, Your Business is Toast
Your ROI has to be positive. If you are going to invest $1 and it is only going to return half a dollar, you are going to run your business at a loss. Eventually, you will owe more to your creditors and investors than your business is earning, and the company will have to close. An infusion of cash helps, but if your business idea is not profitable, it will only lead to more debt.
How to Increase ROI
To increase ROI, focus on sales, since more sales lead to more profit. Often, you can make up a loss by increasing the volume sold. Another way to improve ROI is to manage your budget by saving money. Do what you can to cut down on business expenses, especially when you are first starting out. Do not get too caught up in metrics that distract you. Focus on your company goal, instead. Do not be afraid to experiment in small increments, either.
ROI is the key to successful entrepreneurship for any business. Get to know it, understand why it must be positive and learn ways it can be increased. Get your ROI and other important business calculations with CalcuNation.