ROI (Return on Investment) is probably the most important 
calculation one needs to make to ensure the long-term viability 
of their business. It is not enough to build in a profit margin 
on the product or service being offered. One must track with 
proficiency the amount of dollars being invested into attracting 
sales and how much ROI those dollars put back into the business. 
If the investment meets too little return, a product line is 
doomed to fail in the long-term.


THE BASIC ROI PERCENTAGE CALCULATION

Many experts seem to agree, "calculating an accurate return on 
investment (ROI) is not an easy thing to do."

I do not intend to give you a thorough analysis of the ROI 
calculation process. Calculating an accurate ROI is hard to do, 
but explaining the full scope of ROI calculations in less than 
1000 words is far more difficult.

As such, this article is only intended to introduce you to the 
basic concepts behind ROI calculations. Here is a very basic 
equation for calculating the ROI:

   ROI = [(Payback - Investment)/Investment)]*100

Your payback is actually the total amount of money earned from 
your investment in your company. Investment relates to the 
amount of resources put into generating the given payback.

You should run ROI calculations on both monthly and yearly 
timelines.


IMPROPER CALCULATIONS BY MANY SMALL BUSINESS OWNERS

The business owner often misunderstands the actual amount of 
investment into a business. As a result, true ROI calculations 
for most small businesses are skewed. 

Most small business owners make their mistake in this most 
necessary calculation, because they do not properly value 
their own time. Please note that when I previously defined 
"investment", I stated that it relates to the "amount of 
resources put into generating the payback."

Indeed, "resources" includes cash money. But, it also includes 
"human resources" or "time".

If most small business owners would value their hours at the 
minimum wage, and calculate their time into the investment 
equation, they would soon realize that their small business 
is running in the red!

Some small business owners will finally run ROI calculations 
including the human resources, and suddenly realize that they 
could make more money working a job. If the small business 
owner has been running their business for a really long time, 
struggling to make ends meet, they might see this calculation 
and close their doors once and for all. 


PLEASE DON'T LET ME DISCOURAGE YOU

I do not share this revelation with you so that you will close 
your business down. Quite to the contrary. I share this with 
you so that you can see the big picture and start running your 
business in a way that will actually generate a real profit for 
you and your business.

If you are within the first two years or five years of the start 
of your business, then running in the red should not be thought 
of as a bad thing. However, if you are ten years into your 
business and earning less than minimum wage from your business, 
there is a serious problem afoot that needs to be addressed 
immediately.


STARTING OUT

When you are just beginning your own business, you have plenty of
time on your hands. This is the reason why most small business 
owners do not properly count their time in the ROI equation. 
They just look at cash expenditures and incoming monies, and 
they are satisfied with that calculation.

It is often said that people generate the kind of results that 
they believe they can achieve or the kind that they want to 
achieve. Seeing the goal is the first step to achieving the goal. 
Expectations will always bring results equal to the expectation.

Having been down the business startup path before myself, I too 
understand the desire to calculate ROI without consideration to 
the time invested in the enterprise. 

However, I also understand the importance of placing a value on 
my time and working that into my final numbers. 

In the beginning, I ran two types of ROI calculations: all 
resources exempting my time, AND all resources including my 
time. 

Of course, I actually set a higher expectation for my own 
income level. First, I had decided on ten dollars an hour 
for my time. Later, I adjusted that amount upward. 

Starting out, even though I ran two versions of my ROI 
calculations, I relied first on my resource excluding my 
own time. Once I had achieved this goal, then I refocused 
my attention to reaching the ROI which took into account 
my own time. 

Now, that time has passed, I can go back and look at my yearly 
ROI and see that I have earned enough cash to pay for those 
early days of famine. 


THE SECRET OF TURNING ROI CALCULATIONS INTO SUCCESS

Every step in your business startup is a calculated guess as 
to what you believe you can achieve. 

Measuring your results is essential to making your business 
profitable. ROI measurements are imperative to measuring and 
understanding the results you are achieving with your new or 
existing business. 

Take into account all factors relating to the profitability of 
your business and don't smudge on the facts to make it seem more 
profitable than it really is. It is important to approach your 
business and your business results with absolute honesty. Be 
honest with yourself and face the facts of your task. 

An honest examination of your business at regular intervals 
will help you get on and stay on track to keep the doors of 
your business open. You will thank yourself later.