Many experienced business owners and managers understand ROI, or return on investment, and how important it is to calculate your ROI so you can make wise choices for your company and, as a result, increase your profitability. Any business, no matter how small or how large, can benefit from understanding the difference between ROI and profitability, then utilizing ROI metrics to increase profitability and the success of the company overall.
You can use this calculation to determine your business ROI:
Let’s begin with a brief explanation of the difference between ROI and profitability. ROI involves the amount of money you invest and how much of a return you get back on that money. Profitability is simply the ability the company has to make a profit, and profit is the revenue of the company after expenses are paid. ROI can be calculated for either the entire business, or certain segments of the business – production, for example.
Net profit divided by total assets equals your ROI percent.
So if your net profit is $50,000 and your total assets are $150,0000, your ROI would be 33 percent. It makes sense to understand what your ROI is and how you can improve it for the benefit of your company.
For manufacturing companies and others that invest a large amount of money in equipment and time in training employees to operate that equipment, and where productivity is a key element in the overall success of the company, you can determine your ROI in a slightly different manner. Let’s say, for example, that you want to determine your ROI for the purchase of a piece of equipment for your production line in a manufacturing company. Here is a simple way to determine that ROI:
Consider the cost of the equipment purchase = $5,000 (for example). Consider how much the productivity level of the team using that equipment increased during the year (after starting to use the new piece of equipment) = 30%. Now look at the team’s highest productivity increase in previous years (prior to the purchase) = 5%. If the value of the productivity increase after the purchase (in this example, 25%) is greater than the $5,000 you spent on the equipment, you’ll know that the purchase was worthwhile and you realized a good ROI.
Translating Internal Documents to Improve ROI
One way to increase both your business and production ROI is by improving overall communication with your employees. If you employ non-native English speakers, or if your company includes offices outside of the US, one excellent place to start is by translating your internal documentation. This should include everything – from documents relating to employment to worker safety and training. Of course it should be obvious that workers who understand safety measures will be less likely to injure themselves or others on the job, and that employees who better understand the training material they are provided will be more efficient at their jobs, all of which will increase productivity and, hence, your ROI. But studies have shown another important reason for translating your internal documents: it makes your employees feel more engaged and much more like an integral part of your team. That is an intangible that may be difficult to quantify, but the effect is certain. Once your employees see that you care enough to translate internal documents so that they can have the same opportunity to excel in their jobs as their native English-speaking coworkers, their motivation – and their productivity levels – will undoubtedly increase. Of course there other reasons to translate internal documents. Some of those, in particular documentation related to employment and worker safety, are mandated to be translated by law. But going that extra mile – to translate all internal documentation – may just be the most effective way to increase your ROI and your company’s profitability.