What is ROI – Return on Investment?
To explain ROI – Return on Investment in a simplified way, it can be said that it’s a business term used for measuring financial returns or net profit of a particular investment in one or several businesses.
How to Calculate ROI?
The basic formula for calculating ROI is – net profit/total asset*100.
For example – if your net profit is $250,000 and your total investment or asset is $1,000,000 then your ROI would be 25 percent. But don’t forget that if your business is having a net loss then your ROI will be simply negative.
ROI In The Printing Business
Online printing businesses like Web-to-print or Print on Demand or any other printing startup involves a lot of cost engagement like website maintenance, customer service, chatbot automation, printing, designing, machinery, supplier or material resource, shipping, content marketing, product designer tool (if customization involved), and whatnot.
So, to calculate ROI in your printing business, you need to keep track of all the costs mentioned above and know your net profit.
Setting A ROI Standard For Your Printing Business Is Important
Setting an ROI standard is very important for your printing business. To know your profit margin first you have to divide your gross profit by your total revenue or actual production cost of your product.
How do you get your gross profit?
It’s very simple. Deduct the production cost from the price of your product. So if your product X price is $300 and your production cost is $170, then your gross profit will be – 300-170=$130
And your profit margin will be – 130/170= 0.77
Now, convert the margin into percentage: 0.77*100= 77%
So, 77% is your ROI standard. Your team should acquire 50% or more of the ROI standard to make it a successful investment for you in the business.
In this blog post, I’m going to discuss some tactics to calculate the ROI of your web-to-print/POD/printing startup and meet your ROI goal as well.
Three Universal Tactics to Calculate ROI of Your Printing Business Perfectly
First, You Must Know The Average Number of Orders – To calculate ROI you have to pick up a period from your business running years. Choose six months or a year. You can simply take a spreadsheet and fill in with all the orders you received on a daily basis. It’s best if you choose a pick time for your business when you may have achieved a sales milestone.
Let’s say you have a customized t-shirt printing business. You have integrated a product designer tool to provide your customers with an option to customize their own t-shirts. It surely is a noteworthy change you bring to your business along with other investments in the supplier, shipping, customer service, chatbot automation, etc. As you are investing a lot into your business, no doubt you must calculate Return on Investment at this point.
So, how do you get the average number of orders in your business?
You simply make the data of your daily orders of a specific period of time and divide the total number of orders with the total number of days. You get the result that is your average number of orders per day.
The average number of orders = Total number of orders/Total number of days
This number reflects the success or failure of your product pricing as well as the present and future of your business.
Second, You Have To Calculate The Average Order Value (AOV) – You have to divide the total revenue with the total number of orders.
AOV = Total Revenue/Total Number of Orders
This number helps you determine whether your business strategies and pricing are well-structured or not.
Now, think about setting up the average order value as your KPI. It can help you reach your target sales and change strategies to meet the goal whenever required if your team fails to meet the KPI.
For instance, you have set your Average Order Value or AOV $250 but in reality, it’s not reaching more than $100. Then it’s easy to comprehend that your product isn’t reaching the target customers. It also proves that the product you are selling is more likely to be purchased by people with low income. It’s crystal clear that it’s high time for you to take some initiatives, and rethink and restructure your business strategies.
Third, Bifurcate Your Average Number of Orders – This part of the ROI mathematics will be quite a complicated one for you yet it’s worth the pain. First, You have to divide your average number of orders into two parts.
- Orders from new customers
- Repeat orders per day from repeat customers
Google Analytics (GA) can help you get this data easily. It requires a list of new purchases against the total number of purchases which certainly occurred in a specific period (otherwise, the entire equation will be a waste of time) of time you have selected beforehand.
The ratio coming from the analysis will reveal average orders per day.
- New orders per day
- Repeat orders from regular customers per day
Through these metrics, you will be able to measure and track the ROI of your printing business. If in the last three months you experience an unexpected descent in the customer purchase numbers, it will be easily detected by this analysis and you will be able to take necessary steps or change your marketing strategy to make the process right again.
Now it’s time to calculate your ROI – Return on Investment.
Divide your investment with the increased number of orders so that you can get the Cost per Acquisition (CPA). But you also have to make sure that your CPA is less than AOV or at least equal. Then you have to deduct the total cost of increased orders from the total revenue.
Let’s see how it works –
For instance – With you increased 200 extra orders total order is 300 and revenue is $5000. Your total investment is $3000.
With your increased order 200, your CPA will be – 3000/200= $15
Total Revenue is $5000, so your revenue coming from an individual customer is – 5000/300=$16.67
Now, the total revenue of your increased order is – 200X16.67= $3334
As we have already mentioned before, we subtract the total cost from the increased order revenue. So the profit will be –
Increased Order Revenue – Total Cost = Profit : 3334–3000 = $334
Finally, $334 is your Return on Investment – ROI.
You might have invested a lot of money into your Web-to-print/POD/Printing Startup. The printing industry is vast and you need strategic planning to reach your target digit of profit. Right calculation of ROI – Return on Investment provides you a great opportunity to ensure you are on the right track and whether your tactics are working as expected or you need to bring any changes to your strategies.