Five stars service

13 Ways to Make Your Service Business a Profit Sensation

Service companies make up 80% of the businesses today.  From plumbers, doctors and hair stylists to accountants and printers, a service business helps or does the work for someone.  Many are local. Most require a more personal interaction with their customers.  All sell something intangible.  But some stand out while others struggle.

13 Ways to Help Your Service Business Shine

Get Your House In Order.  The core of a service business is the service itself.  If you fail to deliver what you promise, customers won’t stick around and will share their bad experiences with others. Identify what you want the ‘buying experience’ to look like and have procedures in place to help your people deliver it consistently.  Here are some great words advice from Harry Beckwith, “Getting the word out and attracting people to a flawed service is a strategy for killing a service company.”

Hire for Heart, Teach Skills.  Your business is only as good as the people you employ to deliver what you promise. Skills can be learned through education or training from you or others in your company.  But you can’t teach heart.  People either care or they don’t.  They are passionate about helping others or they are not.  Keep this in mind when hiring people to represent your company and serve your customers.

Know Your Competition.  In a services business, your prospects have more options than you think. Sure they can choose you or another company in your industry.  But they can also choose to do nothing or perform the service themselves.  Look for ways to create additional demand in your market by converting those who do nothing or do it themselves.  Think emotions – what they can gain or avoid!

Mistakes Mean Opportunities. Outstanding service doesn’t mean zero mistakes.  Service businesses are people dependent so mistakes will happen.  How you handle them is the key to how you are perceived long-term.  Don’t pass the buck or try to justify it.  Fix it without a hassle and you may earn a lifetime customer and a lot of referrals.

Be Competent and Likeable.  If you sell a service, you are really selling a relationship, so chemistry counts. Prospects need to like you and feel comfortable working with you.  Sure you must be capable and professional, but most of all you must be personable!  And it must come across in everything you do before, during and after the sale.

Price With a Purpose.  Your pricing says something about you.  Don’t assume it is always logical.  People make assumptions about quality based on price. High price assumes high quality, low price assumes acceptable.    What you perceive to be a value, may actually make you look second-rate.

In his book, Selling the Invisible, Harry Beckwith shared a few pricing tips worth repeating:

  • A little resistance is a good thing.  If nobody complains, your price is too low!
  • Pricing somewhere between the high and low in the market forces you to compete with everyone — so, avoid the deadly middle.
  • Low cost is not sustainable and requires no imagination so don’t go there!
  • Charge for your experience, talent, skills, and knowledge – not your time.

Stand for One Thing.  Have a singular, distinctive message for your service business and reinforce it every chance you get.   You will achieve more if you narrow your focus, choose one thing and put the power of association to work.  By nature, we associate one positive (or negative) thing with other good (or bad) things. Yes, it works both ways.  So if prospects perceive you to be the most convenient provider, by association they will view you favorably for other attributes like quality and expertise.

Don’t Say It, Prove It.   “We offer great service” won’t inspire people to try you since most businesses make these claims.  If you really do a great job, create evidence to support this.  Build your case.  Customer satisfaction surveys are a great and often under-utilized way to document and demonstrate your service quality. The overall satisfaction scores along with customer comments and testimonials can be used in your marketing and make your service claims stand out.  Afraid to know what customers think or maybe your scores aren’t worth bragging about?  Then fix it and make service the priority it should be.

Manage customer expectations.  We’ve all heard the phrase, ‘under-promise, over-deliver’ and it emphasizes the importance of expectations versus satisfaction.  A customer’s satisfaction is the gap between what they expect and what they actually get.  Avoid hype. If you make a client think you will do better or more than you can do, they will end up disappointed and unsatisfied!

Sweat the Small Stuff.  Buying decisions are not always rational.  To justify decisions, people look for differences between service providers. When significant differences are hard to find, prospects look to seemingly minor things.  Are your business cards professional and free of smudges? Is your staff in uniforms or dressed professionally? Are your vehicles clean?

Be Grateful, Show It!  The best way to nurture and keep customers is simple.  Say thank you and say it often.  Stay connected in a variety of ways. Make them feel wanted and appreciated!

Always Look for New Clients.  If you have customers and are really busy serving them, it’s easy to become complacent.  This is especially true for service companies with recurring revenue or those who work on larger jobs a few at a time such as contractors.  Don’t do it.  Keep your pipeline full.  Unless it’s an emergency, people will wait to work with a company they really like or prefer!

Track What’s Important.  While customer satisfaction is one metrics you can use to evaluate what’s important, it’s not the only one.  For example, quality scores that reflect re-works or customer retention rates are effective ways to monitor your results. They can be shared in your marketing.  Labor as a % of sales is also an important efficiency metrics in a service business.  Pick a few that are relevant to your business.  Track them and use them to make improvements. Where applicable, promote them in your marketing and sales efforts.

Service businesses are people businesses.  The more you understand them, the more success you will have.  So get to know your customers personally, understand what is important to them,  and deliver what you promise consistently! It’s a recipe for success in all businesses, but critical when you sell intangibles!

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More Profit-Building Ideas

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6 Ways to Put More Profit on the Bottom Line

In the quest to get more customers and grow sales, many small businesses lose focus on something that is vitally important – Profit! Profit is your reward for excellence in entrepreneurship. So whether you are just getting started or well established, here are some ways to help you put more profit on the bottom line and in your wallet.

Be Different & Compelling

Too often small businesses do what everyone else is doing. They tell customers what they do and just compete on price. If you want to avoid this trap (and you should), start talking benefits not features.

Customers today have many choices, so give them a reason to choose you over others. What makes you and your business compelling and different? Now different doesn’t need to be unique to you and you alone. It simply needs to be something you do very well that you can promote or guarantee – at every opportunity in all your marketing! It’s easier than you think; but if you are not sure, start by asking your customers. When you stop competing on price, you’ll earn more and create profitable growth in your business.

Avoid Trying to Serve Everyone

Who are your ideal customers – those who value what you provide, at the level you provide it and at the price you charge? These are the customers who are happy to work with you, rave about you and often refer others. It shouldn’t be everyone.

Don’t spend a lot of time and energy trying to satisfy everyone or you end up serving few people well. It hurts your reputation and definitely impacts your profit. So nail down your ideal customers, learn more about their needs and build your business around them. What products or services do they need? What are some of the challenges they face? What level of service, payment options, and availability do they expect?

Once you are clear on this, attracting more of them is much easier – and profitable. So be willing to think smaller to grow bigger! You’ll not only make more money, but you will enjoy your customers a whole lot more.

Plan Your Growth

Build your reputation on your core products and services before you start jumping into new areas and new products. More is not always better. Stick with what you do well, build your reputation on it and only expand when you have the resources and ability to deliver what you promise and do it profitably. Don’t let unprofitable growth erode the profits in your small business.

Get the Right People To Grow

At some point, you may need to add people or replace someone who is leaving. Many small businesses are quick to hire and slow to fire. And it comes at a cost – profit and productivity. Before you rush out and hire or replace someone, stop and build a case for your decision. Here are a few things to consider.

  • Do you need someone onsite or virtual?
  • Can you use a sub-contractor or do you need an employee?
  • Do you need someone full or part-time?
  • Can you promote or expand the responsibilities for an existing employee to fill the need — instead of hiring?
  • Can you restructure the company and job responsibilities (and eliminate redundancy) to avoid bringing in additional help?

Explore all your options, look at the costs and benefits associated with them, and then make the decision. Remember, people are an investment in your business. Whether you hire, use a sub-contractor or work with someone virtual, use a system – don’t just wing it.

Know the Numbers

You can’t manage what you don’t measure and what you measure you can improve. Successful owners of all sizes track and monitor what is important to them and their business. What numbers should you track to measure your progress and success? While they vary by business, some common measures include sales, gross profit margins, break even, number of leads, sales conversion rates, average sales dollar per customer and net profit.

Knowing where you are today can help you make better decisions and prioritize what needs to be improved. Do you know how much profit you make from each of your products or services? Or which customers are profitable? If you knew this information, would it change what you market and who you target? The answer is likely YES!

Learn to Love Systems

Finally, learn to love systems. Many small businesses have no documented procedures of how they do what they do. As a result, there is little consistency – a key to productivity, efficiency, customer satisfaction, and profitability. Many assume only big businesses need systems; and say things like, “We’re small, we talk to each other, and we all know what needs to be done”.

Maybe this is true when you first get started and it’s just you. But what happens when you grow and suddenly you are serving more people, or bringing in new staff? What happens when people leave and take the knowledge with them? If you want a business that provides consistent service with less effort and more profits, then make systems a priority in your business. For additional help with systems and procedures, check out my Ultimate Systems and Procedures Guide for Small Businesses.

So whether your business is well established or relatively new, you can make it a success if you focus on creating uniqueness and niche your business, plan your growth, know your numbers and always look for ways to systematize your business. The payoff will be there on the bottom line!

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email

business mistakes

7 Business Mistakes That Cripple Success

Starting a business may be challenging. But sustaining success and building a business that really works for you is likely more difficult. Why? Because what helped you succeed early is often different years later. You need to make adjustments. Owners who do, stay in business. Those that don’t become another sad statistic.

7 Common Small Busines Mistakes To Avoid

1: I Can Do It All
You probably started your business because you had a skill and the confidence to do a better job than other competitors or maybe your current employer. But it takes more than technical know-how to win in business. Assess your personal strengths. Then surround yourself with others to fill the skill or knowledge gaps. Whether you hire employees, sub-contract work, develop power partners or hire a coach or consultant, the support you need is available. Don’t try to do it all yourself.

2: Confusing Customers
Without customers, you don’t have a business. It’s true and explains the focus new business owners put on sales, any sale to anybody. But this ‘never turn away an opportunity’ attitude often creates too many disjointed products, services, messages, and targets. It leads to one thing, customer confusion. And confused people rarely buy or refer others! Focus on your core strengths – what are you really good at and why should they choose you? Build your reputation on this and grow from there.

3: New Customers Are Priceless
That’s why we gladly go out and buy them! Whether we use discounts, free stuff or anything in between. It works. But the strategy only pays off if you keep them and serve them profitably. Be clear on who you want and invest your money to get them. When you do, solve their problems, wow them with service and never take them for granted. Sounds easy – but here’s the challenge. Be willing to say no or turn away customers who simply don’t fit. You’ll never make them happy and they’ll rarely make you rich!

4: We Are Small, We Talk
It’s the most common excuse when it comes to written systems and procedures. Big companies certainly have them, but small businesses need them just as much, if not more. Surprised? It’s not uncommon for employees in small businesses to wear a lot of different hats, requiring a variety of skills and knowledge. Some cross-train employees, most do not. But if procedures aren’t written down, it’s difficult for another team member to simply step in when others are away or leave. That alone is a good reason to write down procedures.

Here’s another. When you take the time to write down how things get done in YOUR business, you help others replicate what you want and then do so consistently and efficiently. When you review your systems with an emphasis on how we can do it better, you will uncover opportunities for improvement and increased profit. Everyone wins. You make more money, customers get what they expect and employees feel empowered through their contributions.

5: Quick to Hire, Slow to Fire
It’s not unusual for small businesses to view the team as family. It’s a strength, but can also be a weakness. Getting the right people to support your business is important. A good hiring system that includes a full job description with clear expectations and goals is a good start. It should be used for all hires – even the ones that are family or family friends! Once on board, invest the time to train them. Written procedures really help here! Make their personal growth and development a priority. Be the leader they need you to be.

With that said, a good system and your commitment and best effort will work most of the time. But we’re human. We have all made bad hiring decisions at one time or another. Perhaps the newly hired employee lacked some skill you thought they had. Or maybe he/she was not dependable or simply didn’t fit with your culture. Whatever the reason, doing nothing is not a good option. Be willing to let them go.

6: I Can Get All The Leads I Want When I Want
Like most things in business, you can if you throw enough resources at it. But is that what you really want — a lot of high-cost leads? Successful marketing has less to do with what you spend and more to do with the consistency of your actions. Turning your marketing off and on when things slow down or sales drop is expensive – but also less effective. It is better to do 5-6 marketing activities well and often versus 10-12 periodically. Develop a marketing plan, with a variety of tasks you do every week and month, and you will keep the flow of quality leads coming – at a cost that will make you smile.

7: My Accountant Handles That
If you own the business, you own the numbers. As a trusted advisor, your accountant provides the financial reporting and tax guidance you need for compliance and success. And a bookkeeper can certainly eliminate the burden of day-to-day record keeping. Delegate, but never abdicate. Whether good or bad, the numbers tell you how you are doing and what you can improve. They help you make good decisions that impact all areas of the business. A good accountant will gladly explain and teach you if you want to learn. Time to embrace the numbers. Successful business owners do!

Related:  5 Skills To Take You From Technician to Entrepreneur

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email

create successful business

10 Ways To Create a Successful Business

When it comes to business, there are plenty of stats on business failures and why this happens. Knowing the potential obstacles certainly provides you with information that can help you avoid the pitfalls.  But since our brain works better with positive reinforcement, we’ll focus on what you can and should do to create a successful business.

When we consider business success there are two fundamentals that are obvious, so I have not included them in the list.  First, the business must have working capital so it doesn’t run out of cash and, second, it must have products or services that others want to buy at a price that produces a profit for the business.

With that said, there are certain things that stand out among successful businesses.  Based on my experience with hundreds of small business owners, here is my list of things to consider – to help you create a successful small business.

Have an Actionable Plan.  Writing down WHAT you want to achieve (goals) and HOW you will get there (actions or tactics) is a must.  As a small business owner, you wear a lot of hats and have a lot to do.  Without a roadmap, everything looks like a priority and the important stuff ends up on the back burner.  It doesn’t need to be long and fancy.  It simply needs to be clear and actionable.   Successful businesses have written goals with associated actions to get there.  My Ultimate Guide to Planning may help.

Think Long-Term Value.  It’s natural to look for ways to save money.  While it should be a priority in both good and bad times, you need to look at the big picture.  Are you creating short-term profit at the expense of long-term value?

Here’s an example to demonstrate this point.  When business got tough, a business owner laid off staff.  As the business recovered, he made a decision to fill some of his staffing needs with temporary help to save money.  Over the next year, service levels began to decline, customers left and his reputation took a hit.  He saved money short-term but it had long-term implications.  Think long-term value when making critical decisions for your business.

Focus on Results.  As a business, you invest a lot of resources in activities – from marketing and sales to service and team building.  But do you track or monitor the results to see what works and make adjustments based on what you learn?  Activities that don’t produce the desired outcome, like more sales, efficiency or profit, cost you time and money.  So whether you are trying a new marketing tactic, hiring a new employee or changing up your service delivery procedures, be clear on your desired outcome and monitor the actual results.  Your findings will determine if you keep doing it, make some tweaks or stop doing it.

Be a Lifetime Learner.  Entrepreneurs by nature tend to be self-confident.  Would you start a business if you didn’t believe in yourself and your abilities?  But none of us are experts at everything and sometimes we just don’t know what we don’t know.  Successful owners understand this.  They recognize their strengths and are willing to teach others what they know.  But they are equally willing to learn from others – employees, customers, business associates and mentors.  They are open to new ideas, willing to try new things and gladly give credit to others along the way.

Speak the Language of Business.  You don’t need to be an accountant or a math guru — but you do need to understand the numbers that drive your business.  Whether you do it yourself or hire a bookkeeper, Quick Books makes it easy for any small business to KNOW what is going on with your sales, profit, and cash flow at any time.  Have an accountant to help with tax preparation and strategic planning, but take ownership of learning and understanding your financials.  In doing so, you will uncover opportunities and make better business decisions.

Leverage Your Business.  You didn’t start a business to become a slave to it – yet many small business owners end up working lots of hours with little reward.  It’s important to simplify and get more done with a lot less effort.  The key here, of course, is systems! Documenting procedures and systematizing routine and critical tasks makes it easy to do or delegate what you do consistently, effectively and efficiently – so you get more done and make more money.  Systems also make life easier for you, the business owner, your team and your customers! They may not be glitzy, but they sure contribute a lot to the bottom line! My Ultimate Systems Guide may help.

Niche: Think Small to Grow Big.  Intuitively, most owners know that trying to reach and serve everyone is a costly mistake.   Today customers are more cautious about spending and often have more choices. To be effective, your marketing must be compelling to potential buyers.  How do your products or services address their goals, desires, and problems?  This is difficult to answer when you are trying to ‘talk’ to everyone.  But when you employ a niche marketing strategy – think small to grow big – it’s easier, more effective and ultimately more profitable!

Here’s where to start: (a) pick a product or service – most businesses have more than one (b) identify the niche or ideal customer for your product or service; (c) identify the problems experienced by those customers and (d) communicate the solutions your products or services offer for the problems they experience.  If you are not sure what the problems are, ask.

Create Profitable Growth.  New business is a priority for most companies.  But revenue growth will not guarantee you put more money in your wallet or bank account. Products and customers are not created equal.  If new sales are coming from low margin or unprofitable customers or products, profit can erode despite the top line growth.  If you can’t make a customer or product profitable, be willing to let them go!

Give Your Products a Facelift.  When was the last time you actually took a look at your products and services – beyond price?  The needs of customers change over time, technology and market conditions change too.   Are your products or services keeping pace?  Do you have opportunities to expand your offerings or reach new segments with minor adjustments?  Are value-adds still valuable to the customers you serve or are you simply adding cost without a return?  Which products or services are most profitable; which are unprofitable?   Successful businesses routinely make adjustments – they add, delete or modify to reach new customers and keep current ones coming back.

Create Raving Fans.  Getting new customers is important, but repeat business is the key to sustainable growth and profit.  Go beyond satisfying customers.  Make it your mission to create raving fans, who buy and spend more and tell others how wonderful you are.

It starts with their initial contact, so make the experience one they remember.  Follow up and do what you promise.  This alone will make you stand out.  Make continuous improvement a priority.  Always look for ways to better serve and wow your customers.  Stay connected, keep them informed and make them feel special.  Do you have a plan or formal method to do so or do you simply take action when you have time or sales fall off?  It’s a lot cheaper to keep customers than it is to ‘buy’ new ones and raving fans are the best advertisement for your business.

There it is.  Not rocket science huh?  In fact, I believe most small businesses have the potential to be better and stronger than they are today. Define what success looks like for your business then apply some of these strategies into what you do.  The results may surprise you.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email


Business Value: 7 Ways To Maximize Yours

Have you ever wondered what your business is worth? While profitability will certainly contribute to the business value, many small business owners are surprised to learn that profit alone is not enough – until it’s too late.

If you want to maximize the business value today and the sales price in the future, you must create a business that will operate effectively without you. The more dependent it is on you, the less value it will have to someone else.

Whether you want to increase the value today, turn it into a passive income stream or sell it outright to fund your retirement, it’s time to start thinking like a potential buyer. Here are some areas you should consider:

Customer Diversity. If a large part of your business is dependent on a small number of customers, your business will have less value. Lose one of these customers and the sales and profit are at risk. Start focusing on diversification.

Systematization. A business where processes are streamlined and documented will always be more attractive and more valuable. Make sure you have written systems for all the critical business activities and daily operations so tasks can be done consistently and quickly by anyone. No one person, especially the owner, is vital to the successful running of the business.

Recurring and Repeat Revenue. All revenue is not the same. Revenue that is linked to contracts or agreements is more valuable. Repeat business, based on high customer retention rates, is also more valuable. Focus on retention and look to create some recurring revenue streams in your business.

Unique Products, Services or Technology. If others can easily replicate what you do, then your business will be perceived by others as a ‘me too’ business. Know what makes your business unique and communicate this uniqueness effectively. Your business will be more attractive – and likely less dependent on price.

Product Diversity. If your business is heavily dependent on one product or service, then future projected revenue may be riskier and less valuable. Look for opportunities to expand your products and services or package them in new or different ways.

People – Your Team. The right people, with defined roles and clear goals, are a key to getting results. Make sure you have a system for hiring, training and developing quality people. Ensure everyone knows the goals for the business and understands their role in delivering it.

Bookkeeping & Financials. Your financial records are a strong indication of how the business was run in the past. A good financial management system, like Quick Books, set up properly, maintained and updated will help you run your business better today – and influence a buyer in the future. If you are not sure how to set up your system for both tax preparation and decision-making, speak with your accountant.

If you follow the above tips, you’ll be able to achieve more sales and profit from your business today and maximize the value in the future.

Ready to Put Your Business on the Path to Success?

Would working with a business coach help you take your business to a whole new level? Then let’s explore the possibilities with a complimentary consultation. It’s a chance to get to know each other, discuss your goals and the obstacles that hold you back. Together we can determine if there is a good fit between your needs and my services.

To learn more or schedule an appointment, call me at (856) 533-2344 or drop me an email


Financial Ratios: Simple Tools For Better Business Decisions

Great products, marketing, sales, teams and operations certainly play a role in your success – but one thing is equally vital to sustained growth … understanding your numbers!

No you don’t need to be an accountant and well versed on debits, credits and a lot of financial information. But you do need to have a working knowledge of your income statement (profit & loss), balance sheet and cash flow statement – along with some financial ratios to help you make better decisions, identify trends and uncover opportunities!

There are a variety of financial ratios used to evaluate activity, efficiency, investments, leverage, liquidity and profitability. Relax, I’m not going to bore you with all of them! But here are a few common ones I use often with clients, just to get you started.

Current Ratio (also known as Liquidity and Working Capital Ratio)

This ratio measures your ability to pay short-term obligations. In other words, do you have enough current assets to cover your current debts or liabilities — current being the operative word here. Current assets include cash plus receivables and inventory that can be turned into cash within a year. Current liabilities are those debts that are due within a year, such as supplier payables, credit cards, payroll taxes, etc.

The current ratio can give you a sense of efficiency and measures your ability to turn products or services into cash. Long inventory turnover cycles, poor collection of receivables and inefficient use of labor can contribute to liquidity problems and poor current ratios.

The ratio calculation is Current Assets / Current Liabilities. The higher the ratio, the more capable the company is of paying its obligations. Anything below 1 indicates a negative current ratio, suggesting you may have problems meeting short-term debt obligations. While it is best to compare ratios by industry, a ratio between 1.2 and 2.0 is normally sufficient.

Here’s an example: Company XYZ has current assets of $23,400 and current liabilities of $17,300. Its current ratio is 1.35 ($23,400 / $17,300 = 1.35)

I also find trends helpful, so take a look at your quarterly balance sheet for the past few quarters and do the calculation. Are the ratios up, down or relatively the same? Why?

Here are some ways to improve this ratio for your business:

  • Collect on past due receivables – and grant credit wisely!
  • Accept credit card or online payments from your customers – make it easy and convenient
  • Use a system for billing – be consistent, be timely, be accurate
  • Have a system for collections – a series of scripts, emails and letters helps – be persistent.
  • Manage inventory – buy ‘just in time’ and get rid of obsolete stuff
  • Schedule deliveries / service efficiently to manage labor costs

Gross Profit Margin Ratio

This ratio shows your company’s financial health after Cost of Sales or Goods Sold are deducted from your Revenue (Sales). It measures your pricing strategy and operating efficiency. Your gross profit represents what is left to pay fixed expenses (like rent, insurance, administration,) along with owner’s compensation and future savings or investments.

Gross Profit Margin is (Revenue – COGS) / Revenue

Here’s an example. Company XYZ earned $5 million in sales while incurring $3 million in COGS related expenses, so the gross profit margin is 40%. ($5M – $3M) / $5 M. That means for every $1 earned in sales, the company has 40 cents in gross profit to apply to other expenses and future savings.

This ratio is a common benchmark used to compare a company with its competition. Higher efficiency and greater uniqueness (premium pricing) typically translates into higher gross profit margins. Optimum profit margins vary by industry, and are available through industry associations, online services and your local library.

Return on Investment Ratio

ROI is a performance measure used to evaluate the efficiency and/or profitability of an investment for comparison with other investment options.

Many are familiar with ROI as it relates to financial investments, such as stocks and bonds and real estate. But as business owners, this metrics is used to evaluate a variety of investments – equipment, hiring, education/training, and marketing to name just a few. And yes, marketing is an investment!

ROI is calculated as follow:

Gain From Investment – Cost of Investment / Cost of Investment = Return on Investment

Here’s an example. Company XYZ invests $1,500 on a new marketing program. They anticipate the effort will produce $7,000 in additional revenue. So the projected ROI is $7,000 – $1,500 / $1,500 = 3.66 or 366%.

One caution when it comes to comparison of ROI ratios. Be clear on what is included in the Gain and Cost elements and be consistent with your comparisons. In the above example, we defined the gain from investment as revenue, a common practice; but we could just as easily defined the gain on investment as gross profit from the additional revenue.

Here’s an example to demonstrate the difference. In the above example, assume that Company XYZ operates with a 40% gross profit margin. Then the gain on investment would be additional revenue ($7000) x gross profit margin (40%) or $2,800. The projected ROI is now $2,800 – $1,500 / $1,500 = .867 or 86.7%

There is no right or wrong method – just be consistent in your approach. When getting ROI ratio from others, be clear on the gain and cost elements they used!

There’s an old saying when it comes to measures of success – What we measure, we can improve. Start using these tools in your business – and put yourself on a path to better decisions and better results!

More Ways to Grow Your Business

For new business improvement articles, exclusive tools and insights on entrepreneurship, click here to subscribe to my monthly eNewsletter. When you do, I’ll also send you my free eBook, How to Build Profit Through Leverage.