Going with its simple definition, ROI means dividing your net profit by total investment. But when it comes to calculating the ROI of your printing business, you have to consider thousands of other parameters.
Because online businesses are not easy to handle.
Your total investment might include thousands of other things like printing costs, website costs, material costs, product designer tool(for customized merchandise), resources, machinery, and whatnot.
After doing everything, now you want to calculate the ROI. It can be a little complicated. And if your business follows the B2C model, then you will have a lot of things to consider while calculating the net profit.
You must be thinking that there are software and apps available to help you out. But as a major con, there you will have the fix parameters for net profit calculation. Hence, we’ve got an easy formula/way to calculate the ROI and help you understand the math of your printing business.
The major thing you need to make sure is to set benchmarks considering multiple aspects of your printing business.
Here is how you can set your benchmarks:
Calculate Profit Margin:
It is the value you get after dividing your gross profits by the total revenue. And gross profit is the remaining amount after you subtract the actual cost from the revenue.
For example, if you want to sell X product for $500 which costs you $200 then here is how you can calculate your gross profit:
$500 – $200 = $300
And your profit margin would be: $300/$500 = 0.6
Here is how you can convert this margin into percentage: 0.6 x 100 = 60%
And that’s your ROI benchmark. You can say your investment in product X is a success only after your team achieves 50% or more than this target.
Here are some of the things you can consider before you set benchmarks for your printing business:
- The break-even period
- The Pricing & Marketing Strategy for the break-even period
- Marketing budget & strategy to achieve ROI goals
When you consider these things, it will help you anticipate the next steps to follow for your business.
Once you set the benchmarks, here is how you can calculate the actual ROI of your printing business.
Step 1: Average No. of Orders
When it comes to calculating ROI, you will need to pick up a specific period. Take out all the orders you received throughout that period. Also, we’d suggest you consider a period when you achieved major milestones or made some big changes in your business model.
For example, you had an e-store to sell products in which you added the product customization feature by integrating product designer tool. Now, that’s clearly a major step. You also hired extra resources to run that addition successfully. Hence, you should calculate from that period.
Now, divide the total number of orders with the total number of days for the average no. of orders.
Kindly note that you can consider all days if you are printing in-house.
Average No. of Orders = Total No. of Orders / Total No. of Days
After getting the average number of orders per day, you will be able to predict if your campaign strategies are a hit or miss.
Step 2: Average Order Value
Here you divide the total revenue with the number of orders.
Average Order Value: Total revenue / Number of Orders
This number will help you measure your online marketing efforts. You can also check the performance of your pricing strategy.
You can also set Average order value as one of your KPIs. You can evaluate your strategies and set goals based on this.
For example, if you have set your AOV $300 and in reality, it’s reaching nearby $150, it means that you need your products to reach your targeted audience more effectively. You can reframe your audience targeting strategies.
Step 3: Further Bifurcation of Avg No. of Orders
Here we will bifurcate the Avg. No. of Orders into two parts.
- Recurring Orders
- Orders from new customers
To get this data, go to Google analytics and make a list of unique purchases against the total number of purchases. Here, you need to make sure that the goal conversion values that you are considering fall under that specific period we discussed above.
After calculating the ratio, you can apply the same to the average number of orders. Doing so will get you these two metrics:
- No. of orders per day from new customers
- No. of orders per day from repeat customers
Once you have these, you can track and compare the ROI of your online as well as traditional marketing efforts.
For instance, if you notice some fluctuations in your orders for the last two months, you need to find out the changes you did in your marketing or sales strategies.
And here comes the calculation of ROI after many efforts. Here you divide the cost of investment with the number of increased orders after implementing the strategy. It gives you the cost per acquisition.
After that, you subtract the total cost of increased orders from the total revenue.
I know it can be complicated so let’s understand it with numbers.
For example, if your total investment is $2000 for the XYZ strategy. And for the whole quarter, there was a hike of 200 orders.
So, your CPA will be: 2000/200 = $10
Make sure that the value of the CPA is equal to or less than the Average Order Value (AOV).
Now, we will deduct the total cost of extra orders from the total revenue of those orders.
If your revenue from 300 customers totals $4000 including the extra 200 customers, then revenue from an individual customer is 4000/300 = $13.33.
So, total revenue from your newly acquired 200 orders would be 13.33×200 = $2666.67
Profit = Total revenue – Total Cost = 2666.67 – 2000 = $666.67
And that’s your ROI! Phew!
You can also try this math for your own printing business and see what you have got! But one thing you should keep in mind that no matter what these numbers say, the main key is keeping your customers at the center and keep improving.
Also Read: Entrepreneur’s guide in planning a small business