Sales results have a huge impact on business decisions, which is why it's important for both sales managers and marketers to know their return on sales (ROS) rates. In this post, I will give you some tips and tricks to help you figure out your ROS rate in minutes.
Let's directly dive into the topic of how to calculate return on sales.
When you're selling a product, it's important to know your return on sales. Return on sales takes into account the revenue generated from the sale of your product and the costs associated with producing it.
This is an important metric for any company. When you sell a product for $100, the ROI basically tells us how much we can expect to earn from sales of this item in total.
If we were able to sell an item just based on its price tag (without having costs associated with volume or promotion), without any markup whatsoever, what would it make sense that our money back?
We'll guess $100 every time! If your company is using POS systems like Square Register, Stripe, 3s Pos, or Shopify's you can easily calculate your total sales and profit.
Add up the number of units you sell each month (each piece should be recorded as a separate sale), divide them by 12, then subtract your costs to get an estimated Net Profit before taxes.
Now just multiply NPI with desired margin percentage (.5 in our example) and voila! That is how much tax will affect the estimated net profit.
The formula for calculation Return on Sales is:
Return on Sales = Operating Profit / Net Sales
Calculating R.O.S. can be a tricky process but it's important to know what you're getting yourself into. It's no easy task to figure out how many customers your business has, and this is where it can get complicated.
You'll need to account for all the costs associated with your business, including rent, salaries, advertising, etc., in order to calculate an accurate return on sales number.
Additionally, you will also want to consider whether or not your company owns its own building or if it leases space from other organizations or individuals.
The square footage of your business space will impact the number of units you are able to sell, along with whether or not that unit is visible on a busy street.
The visibility and accessibility will also depend upon what kind of job site it is situated on.
If the parcel behind your shop appears secluded from traffic at all times, then each time you extract visitors from their cars and bring them into your store they pedal past hundreds if not thousands more vehicles as they make their way to various destinations nearby.
The visibility and accessibility of your establishment will affect not only the amount visitors you receive but also how many people are willing to take a trip out of their way just in order to purchase one or two pieces each month.
The return on sales formula is commonly misunderstood by those who underestimate demand for vintage clothing items both online and offline as well as the willingness that customers have toward purchasing this type of merchandise from various sellers.
The difference between the true demand for vintage items and what the seller receives as a percentage of their sales varies from business to business, with each medium having its own unique demands when it comes time for them to make decisions about where these pieces will be sold.
Return on sales is a vital metric that is required to calculate the success of any business. I hope now you know how to calculate return on sales.
It's also a simple calculation that can be used by anyone to determine whether or not they are making money, and how much money they are making.
To make it easier for you to understand, I've outlined what it means and how to calculate return on sales in this blog.
That's all for now! See you later with a different blog! Till that keep the conversation going in the comment section below.
