Return on investment is a financial method used to measure the gains from an investment. A commission tracking software helps you to manage your commission sales and payments with ease. In this case, there is a need to know how to calculate the Return on Investment.
Measuring the success of your sales commission’s plans
A company that holds a great compensation plan derives a higher sales team performance, and this increases its revenue. Such firms find it essential to know what they get in return from the investments they make.
Different companies establish different ROI from their sales compensation investment. This is from what they set aside to facilitate the sales they make. The result may either be a gain or loss which needs to be recognized in the income statement.
A gain will arise when the value realized exceeds its cost; on the other hand, a loss occurs when the value of investments realized is less than the amount invested.
A measure of the ROI, therefore, helps a company determine its financial position and plan on how it can make progress.
These are some other reasons why ROI is critical:
- It helps in determining the profitability and expenditure of any company.
- The company's growth is based on how successful the business is - ROI can be used to measure the success of the business.
- Young companies are able to determine how much revenue an investment is going to make.
- ROI also helps to fine-tune the marketing budget of a company. This limits the company from overspending, thus maintaining the business’ financial stability.
Knowing how to calculate your commission tracking software return on investment is built on a base on understanding how best the company is performing in its current market.
Businesses, by use of ROI, have the ability to determine if their sales compensation programs are a success or failure. From the information gathered, the company can then develop a strategic plan on how to deal with the weaknesses spotted in the business.
Financial wise, the company can determine their profit ratios and how best they can improve it. In cases where they have been making losses, they will design turn-around strategies or come up with measures that mitigate the losses incurred.
The sales team should be encouraged to always focus on maximizing the sales to ensure that whatever they invest gives the business a good return at the end of the financial period.
How to calculate Return on Investment
Various sales companies use different ways to calculate their return on investment. The primary method used is productivity value over resource cost. Below are some of the main approaches used to calculate ROI.
There are eight categories used. The most effective two are:
- Net return on an investment divided by the cost of investment ×100%. This is where the financial officer of a business sums up the realized gains from an investment, divided by the initial value of investment made. This is the primary method used.
- Final Value of Investment − Initial Value of Investment divided by the cost of investment ×100%
Different as they may be, both methods are efficient, and the final results are always the same. The only varying factor is the method of approach.
To plan for this, you need to build a long-term project plan for the future. Consider your sales as per the current financial year and remember to compare what goes out and the generated income.
Communicating the plan to the team
Efficient communication ensures that every team member understands their role and what is expected of them. There are four practical ways to do this:
Build the plan as a team
Involve anyone who can be of help, let them synthesize the method you choose and come up with a final report.
Choose the right tool
The most effective method quickly adopted by the team should be chosen.
Emphasize the crucial areas and make sure everyone understands its bases.
Consider the use of technology
Consider the best sales commission software.
Getting your employees the right tools also puts them at ease and increases their efficiency at work. It also allows managers to stay ahead of the workload and identify errors before they are made. This builds confidence in the whole organization, therefore, improving the overall performance and bringing in higher returns.
There are a number of alternatives to the return on investment ratio. For a business to succeed it has to have a well-laid plan and a compelling return on investment calculation formula. The advantage of today’s era is that technological development has led to the creation of tools that you can easily use to track the ROI of any sales commission tracking software.
The use of such tools keeps a company ahead of its game in an already competitive market. This promotes consistency in profits and higher overall performance that reflects on its economic capabilities, and Blitz it’s the commission tracking software that you need to maximize your sales and ROI this 2020.
Get in touch with us today!