Sales ROI, or return on investment, is a vital calculation for determining the success of your business. It’s not enough to just look at raw sales data - while your sales for any given period of time may look impressive on paper, this figure alone lacks real meaning unless connected with costs and expenditures to show how your sales are really performing.

As such, it’s important to be able to calculate your ROI whenever necessary. This generally involves the use of a variety of formulas that account for different factors affecting your ROI; however, we’ll start with the simplest version of the ROI formula as a base.

## The Simple ROI Formula

The most basic version of the ROI formula is simple to calculate - simply take your net returns and divide by cost to produce a ROI figure. Costs could include marketing expenditure, operational costs, or production costs.

Essentially, the formula is as follows:

**(Return - Cost) / Cost = ROI**

For example, imagine Business A implements a marketing campaign at a cost of $1000 that results in sales of $5000. The ROI calculation would be (5000-1000) / 1000 = 4. To express that as a percentage, simply multiply by 100 - so Business A’s ROI on their marketing campaign would be 400%.

While the simple ROI formula is quick and easy to calculate, and produces an easily digestible figure, it doesn’t provide a full picture of your ROI as it fails to take time into account. As a result, the total return rate doesn’t reflect the rate at which the returns are produced.

Using the example above, let’s assume Business A’s marketing campaign produced $5000 of sales over two and a half years. Meanwhile, Business B also yielded a $5000 return from $1000 of costs, but over the span of four years. Clearly, Business A’s ROI is more impressive since it’s over a shorter time frame, but the simple formula produces the same figure for both businesses.

(Obviously, these figures might not be particularly realistic - but we’ll stick with them for simplicity’s sake!)

Because of this, we need to use a formula that reflects returns over time to provide a more accurate picture of ROI and sales performance.

## The Annualised ROI Formula

As the name suggests, the annualised ROI formula calculates a percentage figure that represents yearly ROI. This allows a better view of how quickly your investments in marketing or other operational improvements generate returns, instead of simply showing returns relative to investment.

The formula for annualised ROI is slightly more complex than the simple ROI formula:

**((1 + (Return - Cost) / Cost) ^ (1 / Number of Years)) - 1 = Annualised ROI**

As an example, let’s go back to Business A. Their annualised ROI would be:

**((1 + (5000-1000) / 1000) ^ (1 / 2.5)) -1 = 0.9037**

Multiplying the result by 100 gives Business A an annualised ROI of 90.37%. Using the same formula for business B, meanwhile, produces a much lower annualised ROI of 49.53%. Where the simple ROI formula makes the two businesses appear the same, the annualised ROI formula shows that Business A is clearly performing better than Business B.

The annualised formula is therefore a much more effective way of gauging ROI over time to gain a fuller understanding of sales performance. Unfortunately, it’s still not quite a completely accurate formula. There’s another key consideration to be taken into account: how do you know that all the sales here resulted from the investment in question?

## Attributable ROI

The previous formulas assumed that all sales growth was the result of the costs in question - whether those costs are from marketing campaigns, hardware investments, or other operational costs. However, this fails to account for organic growth - the increase in sales your business was already experiencing prior to any investment being made.

Because of this, ROI calculations must be accompanied by long-term trends and statistics to show the organic growth of your business before the investment in question was made. This allows you to quantify an organic growth figure which you can subtract from the simple ROI figure to provide a more accurate picture of your return on investment.

This new figure is your attributable ROI - in other words, the ROI that can be attributed specifically to your investments, rather than organic growth.

## What Is A Good ROI For Sales?

This is a tricky question to answer, since the definition of a “good” ROI varies greatly depending on the size, type and industry of the business in question. Generally speaking, any positive ROI is a good ROI, as it shows that the investments your business is making - whether in marketing, new systems or hardware, or any other purchase designed to improve sales - are producing value for your business through sales.

On the other hand, a negative ROI shows that your investment is actually wasting money, since the sales generated by the investment aren’t even covering its initial cost. A negative ROI is a sign that your strategy isn’t working and that the investment in question should be revised or abandoned.

## Technical Solutions For ROI Calculation

As we’ve seen, calculating an accurate ROI figure takes some reasonably complex formulas which can be difficult or time-consuming to repeatedly, manually calculate. These formulas only grow more complex as you adapt them to account for even more factors affecting ROI to create a fuller understanding of sales performance.

It makes sense, then, to automate as much of the ROI calculation process as possible. Once you’ve worked out a suitably accurate ROI formula (or multiple formulas covering different factors), you can input this formula into a spreadsheet and simply enter new sales data as and when you need to calculate ROI.

An even easier way to handle ROI calculations is through financial software or SaaS applications that can automatically generate ROI calculations alongside various other vital statistical functions.

This is a quick way of building a full picture of your ROI and sales performance without devoting time and energy to manual calculations or data entry. Your understanding can be enhanced even further by using a sales dashboard such as Hustleboard which can provide you with a variety of ROI stats at a glance, allowing you to gain the insights you need without the headache of searching for individual figures and formulas.

## Conclusion

ROI is a vital calculation for any business, but it isn’t quite as simple as it may first appear. When calculating ROI, you should always account for returns over time and existing sales or growth trends in order to make the most sense of your business’ performance. If in doubt, you can always rely on a technical ROI solution in order to save time and effort.