Adrian Newman’s latest ‘e-Wealth Daily’ article is titled “How to Calculate ROI”. [Adrian Newman’s Article]

Adrian Newman’s latest ‘e-Wealth Daily’ article:

How to Calculate ROI

ROI is the acronym for “Return on Investment” and it’s an important number to keep in mind when doing any kind of business.

In its most basic definition, ROI can be calculated by dividing a profit by the total investment. So, if I buy $1,000 worth of a company’s stock (including any fees that go with the investment) and sell the stock later on for $1,500, my ROI would be 50%.

Pretty simple, huh? But there are a lot of other factors to consider when calculating ROI. One of these factors is time…your time.

As an entrepreneur, you have to include your time as part of the initial investment. So let’s do a mock scenario:

Say you purchase some new software that will help you facilitate taking orders for your new business. The software costs you $10,000 and, over the course of a year, you see your sales increase by $30,000. The software generated a 200% ROI.

But did it really?

You see, when you first bought the software, you had to enroll in a three-day training course to learn the basics. That course cost $200. Those three days took you away from your business. You have to put a price on that time. If your company generates $1,000 a day in revenue and you’re 85% responsible for that, then you now have to add on $2,550 ($850 x three days) to your initial investment.

Oh, and the training course was also located out of town, resulting in a $900 travel expense.

After the course, you realized you’re better off upgrading your computer system. That costs you $2,000. You also spend time training your employee on the new software, taking a day for you to train them (15% of $1,000 is $150), plus having to pay them overtime because it took 12 hours to learn the system (let’s say time and a half of $12 an hour for four hours comes to $72).

You also make use of the software’s customer support, which costs another $700 for the year.

So now you’ve spent an extra $6,572 on that software. Your ROI now has to be adjusted based on that total investment:

($30,000 revenue – $16,572 investment)/$16,572= 81% ROI)

Now, that looks like a big drop, but you have to remember that a lot of the add-on expenses, like the initial purchase, the training costs and travel expenses, are one-time purchases. Yes, you’ll have to probably have to pay licensing and support, but the big lump sum is out of the way and the expense of that software will go down the following year.

Also realize that sometimes, when calculating ROI, you might wind up with a negative number. While you want to see more positive numbers than negative, sometimes those negative numbers are unavoidable at first.

But, as you continually recalculate the ROI of one-time purchases that will bring in a stream of revenue, this number should creep higher and higher.

Sincerely,
Adrian Newman

e-Wealth Daily

About e-Wealth Daily

The e-Wealth Daily Bulletin brings you daily tips, advice and breaking news related to home businesses, small businesses and internet marketing. Our team of experts gives you the information you need to take your business pursuits to the most profitable level. Founded by Adrian Newman in 2003, the e-Wealth Daily Bulletin and www.ewealthdaily.com are a division of Lombardi Publishing with online newsletters reaching over 100,000 subscribers each month.

* IMNewsWatch would like to thank e-Wealth Daily for granting permission to reprint this article.

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