Importance of Return on Sales
The ROS metric is a good indicator of how well your business is doing financially. But, there’s more to it too. Let’s walk you through other benefits of calculating return on sales:
The metric helps understand how well your sales strategy is performing.
A sales strategy that works for your business delivers a good return on the investment. For example, if you’re solely focused on cold outreach for sales, your ROS from it can tell how well the tactic is doing.
Additionally, “ROS is best used as a measurement of when to grow,” advises Josh Skinner, Director of Sales at TINYpulse. “It defines whether or not you are in a good position to spend some more. Knowing this KPI allows you to strategize, can you stretch a little more or should you cut back?”
Return on investment tells management how well expenses are managed.
When executives shell out money on software for sales, salaries for sales reps, and more, they need a clear idea of how well the return on that investment is. ROS can help give this snapshot.
The metric is a good measure for business growth.
For one, ROS gives you the profit you’re making so you can identify the return you want to reinvest into your company to grow it further.
Two, return on sales is a reliable metric to aim to increase as the higher the ratio, the more the profit.
Lastly, you can use the metric to get a picture of your company’s year over year performance as it takes into account both your expenses and revenue. In contrast, revenue isn’t a reliable metric to measure your businesses’ profitability as your expenses and revenue can vary over time.
ROS lets you draw a comparison between same-sized businesses in the same industry.
This way, you can tell how well your business is doing in the industry and alongside its competitors.