Key performance indicators (KPIs) like conversion rates, engagement, or email marketing metrics are contextual. How it is interpreted depends on the overall business goal.
For example, conversion rates are the percentage of leads who completed a desired action, such as clicking a link, signing up for a newsletter, or buying a product.
Analyzing these metrics is essential. However, they only provide a snapshot of a specific aspect of your sales operations performance.
For a clear view of what sales strategy works best—look into the return on sales (ROS). We’re here to help you understand how to use and measure it effectively. But first, we need to learn:
- What is return on sales?
- How to calculate return on sales
- Return on sales vs other profitability metrics
- Leveraging email marketing to boost ROS
What is Return on Sales?
Return on sales (ROS) is a metric that shows your sales strategies' profitability relative to operating costs. In a nutshell, it reveals how much of your revenue translates into profit.
If a business has low ROS, sales operations aren’t as efficient as expected. Budgets for prospecting, outreach, and marketing could still be optimized.
Businesses looking to scale often run into these issues. Low ROS might mean that previously worked sales strategies aren’t scalable. Instead of growing, they remain stagnant.
ROS should increase as your business grows. To effectively monitor ROS, business owners must learn how to calculate and use it to create more efficient sales strategies.
How to Calculate Return on Sales
Return on sales is calculated by dividing sales revenue (before taxes) minus sales operation costs with the net sales during a specified period. Here’s an example:
Let’s say company A made $300,000 in revenue but incurred $200,000 in expenses. That means operating profits come to $100,000. Then, we divide this by the net sale of $300,000.
Company A’s ROS is 0.33 or 33%. A good ROS depends on the industry you’re in. Let’s say the industry average ROS is at 25%. This makes company A’s ROS reasonably good.
Remember, ROS is different from ROI and other profit metrics. Learning the nuances is crucial for making informed decisions about sales performance and your business's financial health.
Return on Sales Vs Other Profit Metrics
Return on sales is often confused with other profit metrics. However, there are clear distinctions between them. Here’s a look into the differences between common profit metrics and ROS:
Return on Sales Vs Return on Investment
ROS shows you how efficiently a company runs its business based on the profitability of its sales revenue per dollar. Meanwhile, ROI measures the return generated from an investment.
Still, both metrics are interconnected and offer a holistic view of a company’s financial health. For example, a company can have high ROS but a low ROI. This could be a sign that the sales operation costs are too high, which leads to diminished returns.
Return on Sales vs Return on Equity
Return on Equity (ROE) measures the shareholder’s return on investment. It is calculated by dividing the net income by the shareholder’s equity (debt minus assets).
You can also expand ROE using the DuPont formula to get more accurate insights into the efficiency and returns shareholders receive. Here’s the DuPont formula for ROE:
ROE = (Net Income/Revenue) x (Revenue/Average Net Assets) x (Average Net Assets/Shareholder Equity).
The first term is your Return on Sales (Net Income/Revenue). The second term is your turnover rates (revenue/net assets). The last term is the equity multiplier (Average net assets/Equity).
Return on Sales vs Operating Margin
We calculate ROS using EBIT (earnings before interest and taxes). Operating margins account for these expenses and use operating income. Operating income is a Generally Accepted Accounting Principle (GAAP), while EBIT is not.
Return on Sales vs Profit Margin
Profit margin and ROS are often used interchangeably. Both are computed by dividing net income by sales. However, ROS uses earnings before income and taxes (EBIT), while profit margin uses income after interest and taxes.
What Does a Good Return on Sale Ratio Look Like?
Return on sales provides critical insights that significantly affect your business’s profitability. Here are some factors to consider to identify if your ROS needs improvement:
Competition
Your competition, especially those relatively close to the size of your business, likely has the same sales operations. Labor, material, and operation costs should be similar.
This could gauge whether you’re falling behind or are ahead of your competitors. Higher ROS means you’re likely beating the competition.
But it’s not every day that competitors publicly disclose their ROS; if they do, great! You have an apples-to-apples comparison. If not, you can always look at industry benchmarks.
Industry Average
Looking at the average ROS in your industry can help you set goals for the level of profitability your business should generate.
Lower ROS than the industry average could indicate underlying issues within your sales operations. That’s why it's also essential to look into your company's trends.
Company Trends
Is your ROS increasing year after year, or does it remain stagnant? Sustainable company growth means yielding higher ROS as you scale.
You're managing your budget effectively as long as the ROS growth is enough to sustain the added expenses associated with scaling.
Best Strategies For Improving Return on Sales
Every business that wants to grow must strategize to improve its return on sales. Here are three actionable strategies for boosting ROS that apply to most types of companies:
Increase Revenue
Implementing strategies that help increase revenue ultimately boosts ROS. Try growth hacking, upselling to existing customers, or increasing sales volume through discounts or promos.
Optimize Budget For Sales Operation Costs
Is your budget optimized for improved profitability? We’re not talking about cutting corners. Instead, assess all the costs related to your sales operations.
This includes tools, labor costs, or lead generation costs. Can alternative solutions save on operation costs while retaining or boosting productivity? Are you investing in sales training?
Consider implementing the proper sales commission structure to incentivize sales reps to hit goals and benchmarks. You can also increase your base salary to attract high-performing sales reps.
If you’re selling physical products, look into material costs. Are the raw products being wasted or properly used? It’s also worth negotiating with suppliers for lower costs.
More Efficient Sales Operations
Always leverage the right tools to streamline your team’s workflow. In most B2B SaaS companies, these tools include your CRM, outreach, and prospecting tools.
Remember, each of these tools costs money. There’s also a learning curve for most tools, so you’d also have to invest time into training.
Instantly has you covered if you want an all-in-one solution to these tools! You can do technical setups for cold email, find leads that fit your ICPs, and automate cold outreach all in one tool.
Leveraging Cold Email Marketing to Boost Return on Sales
Email marketing is arguably the fastest, easiest, and most scalable strategy for boosting return on sales, especially if you’re selling a SaaS product or a service.
Most businesses rely on social media marketing or paid ads to generate sales. However, this model isn’t scalable. The more people you want to reach, the more you need to pay.
With sales email outreach, you can reach thousands of prospects at a fraction of the cost of traditional digital marketing strategies. Plus, you can automate and personalize at scale.
Here’s a quick guide on how to save on sales operations costs and boost return on sales with cold email marketing.
Get Better Lead Quality With Instantly B2B Lead Finder
Sales teams can spend hours finding the perfect prospects to reach out to. Instantly, B2B Lead Finder lets you find prospects that fit your ICPs with just a few clicks.
A large portion of the sales process becomes streamlined as B2B Lead Finder lets you qualify, and segment leads before adding them to your campaigns.
Qualified leads allow sales reps to focus on leads with the highest conversion chance, saving you precious time and resources.
Creating Sales Email Copy That Resonates With Your Audience
Cold email becomes a massive waste of resources if it’s not personalized. But you can’t personalize sales email copy for each lead manually. That’s where lead intelligence comes in.
Lead intelligence data enriches your email lists with relevant information, helping you position your sales email copy in a valuable way to each prospect.
Instantly can use lead intelligence data as custom variables that can be used to automate personalization in every sales email.
Automating Cold Email Outreach With Instantly
Instantly can automate sales email sequences and help you find your best-performing emails through A/B testing.
If your team has a developer, you can use our API to seamlessly integrate Instantly with tools like Zapier to streamline workflows.
Key Takeaways
Return on sales is a crucial metric that can assess a company's financial health, help optimize sales operations budgets, and offer insights on scaling sustainably.
To recap, here are some key details you might’ve missed:
- To calculate return on sales, we use the formula: ROS = (Revenue - Costs)/Net Revenue
- A good ROS depends on your industry, market, and company trends
- If your company has stagnant ROS year after year, operational costs may be too high
- Implementing growth hacking, optimizing the sales operation budget, and streamlining the sales process will help boost ROS
- Leverage cold email marketing if you want to streamline and automate the sales process
Cold email outreach is the most scalable, cost-efficient growth vehicle for improving ROS. When it comes to cold emails, nothing beats the scalability that comes with Instantly! Try it out today
