If you have to define “What is ROI?”, you would simply say - Net profit divided by total investment. But it’s actually a lot more than this simple formula you have known so far.
The calculation of ROI becomes much more complicated when you own an online printing business. Your investment might encompass several costs like printing costs, website maintenance cost, material sourcing, and product designer tool (in case you deal in custom printed articles, machinery, salaries, etc.)
The first thing to understand when
calculating your ROI is your net profit. Calculating your net profit can be a tough job and if you have a retail e-store, only ‘Euclid’ could calculate your ROI.
However, today there’s no doubt that several software and apps may help you, but you will still need to fix deciding parameters to calculate your net profit.
Hence we have cracked down a simple formula to calculate the ROI of your business.
Before you start calculating, you need to set benchmarks to consider multiple aspects of your business.
Setting ROI for Your Printing Business
The first thing you need to calculate for ROI is the profit margin by dividing your gross profits by total revenue.
Let’s say if you sell an article Y for $250, and the actual price of the article is $200, the gross profit will be:
$250-$200=$50
And your profit margin will be: $50/$200 = .25
Converting profit margin into percentage will give .25 x 100% = 25%
The final number should be your benchmark. rnYour business can be successful if your investment in product Y can achieve 50% or more of this target. rnBefore setting your ROI benchmark, you need to consider the following things also:
• Period of Break-Evenrn• Pricing and marketing strategy for the break-even periodrn• Marketing budget and strategy to achieve ROI goals.
Considering these things in your strategy will help you anticipate the course of your business.
Now, let’s understand the procedure for the actual ROI calculation for your business.
Number of Orders Per Day
Fill the number of orders you receive per day in a spreadsheet. Choose a specific period for the calculation of ROI. This period can be anything ranging from a year to a major milestone when you introduced big changes in your business model.
Let’s assume you earlier used to run a simple fashion online retail store. But now you have added a
product designer tool to offer your customers the freedom of customization. This is a big change as your target audience changed, you added a new asset and a few additional vendors like printers or designers, etc.
rnSo, ideally, you need to calculate your return on investment for such a major change.
For this scenario, take data for a particular period. After that, divide the total number of orders by the total number of days.
This formula gives you the average number of orders per day. This number will directly reflect whether your pricing strategy has succeeded or failed.
Average Order Value
To calculate average order value, you need to divide the total revenue with the number of orders.
rnThis number will give you a better idea of your online marketing efforts and will also help you evaluate the performance of your pricing strategy.
rnYou can set this metric as one of your KPIs to analyze your printing business. You can evaluate your strategies and set future goals with this KPI.
For instance, if you have decided to keep your AOV at $250, but in real-time, it’s only $50, which means your products are not reaching your targeted audience. They are possibly more acceptable among lower-income groups. And accordingly, you can tweak your strategies and produce content accordingly.
Once you are clear with the average order value, the next thing to understand is the total number of orders.
rnBifurcating the Average Number of Orders
(Going to get a bit more complicated)
This step includes bifurcating your average number of orders - those from the recurring customers and the others from the new ones. For this data, go to Google Analytics and note down the unique purchases against the total number of purchases. Also, ensure you are analyzing data of a particular time period only.
Calculate the ratio of new users to return users and consider the goal conversion values against these metrics. After calculating the ratio, apply the same to the average number of orders. This procedure will give you two numbers.
• Number of orders per day from new customersrn• Number of orders per day from old customers
With these two numbers, you can easily track and compare the ROI of your traditional and online marketing efforts. rnFor instance, if your sales went up greatly in the last one month, try to figure out what you did differently in your sales or marketing efforts for that.
Post this, by dividing the cost of investment with the total number of increased orders after you have implemented a particular strategy. This number will give the cost per acquisition. Subtract the total cost of increased orders from the total revenue.
rnLet’s assume, your total cost of implementing an ABC strategy is $1000, and in the last quarter, your orders went up by 100.
So, your cost per acquisition (CPA) will be 1000/100=$10rnNow, let’s subtract the total cost of extra orders from the total revenue of those orders.
Your revenue from 250 customers totals $3000 including the extra 100 dollars. Revenue from an individual customer would be 3000/200 = $15.
So, total revenue from 200 customers would equal $3000 including those extra 100 orders.
Revenue from an individual customer would be 3000/250 = $12.
Hence, the total revenue from your newly acquired 100 orders would be 12X100 = $1200.
Profit = Total revenue - Total cost = $1200 - 1000 = $500rnThis is the way you can calculate the ROI on your marketing approach and gauge the success or failure of your pricing strategy.
Conclusion
Calculating ROI is a tedious job yet very valuable for analyzing your ROI on your combined marketing and sales efforts for your business. So, just do some math and grow your business.
Original Source:
https://www.linkedin.com/pulse/calculating-your-printing-business-roi-pratik-shah/