So by the time if you have a misconception that knowing above formula is enough to calculate Return on investment then let me tell you ROI is more than that, And if you visit your vendor or Distributor with half the knowledge that you never want, so lets start it.
Before we actually calculate Return on investment. Its very important to learn all the definition with examples . So I have explained all the component below
so in order to calculate ROI the first component is Gross income. Gross income is the SUM of Margin and incentives.
Now what is Margin ?
Margin is the additional percentage allowed to distributor by the company when distributor sales the product further.
Example – A company sales a product to distributor at Rs 100 and the distributor sales the same product at Rs 105 to customers, the additional amount Rs 5 he charges is known as margin.
What is Incentives In sales?
A sales incentive is offered by the company to distributor an a particular occasion in order to do so extraordinary investment.
So lets back to our topic ROI . So once you will find out the the gross income you can find out the Net income . the formula to derive the Net income is……
Net income = Gross income – Expenses .
Expenses are of two types
Direct Expense – example of direct expenses are Exclusive Manpower (DSE ,accountant , MIS, Manager etc), Interest on Capital
Indirect Expenses– examples are shared office (operating for two or more companies ) Electricity Bill for that office. Shared stationary etc.
So by the time you know how to derive Gross income and Net income.
Now lets understand that what is Investment in case of a distributor or vendor.
Investment = average market credit + average fund in inventory + outstanding claims
What is Average market credit?
Market credit is the working capital , the amount which is always invested in market inters of credit to the retailers. (I will explain this in Excel)
What is Average of Inventory ?
This is the amount which is working capital in inventory. (I will explain this in Excel)
What is outstanding claims?
Outstanding claims are the amount which is receivable from the company may be its a pending incentive for which distributor has qualified but yet to get that amount.(I will explain this in Excel)
So now lets Take an hypothetical case study and calculate its ROI Return on Investment
Case Study:- Distributor ABCD has a monthly turnover of Rs 50,00000(5 million) company allows him a margin of 5% . He has a manger to take care the business who gets salary Rs10000. He has 4 Sales executive and their salary is Rs 5000 each. Office Rent is Rs 10000. His monthly stationary cost is Rs-5000. He is having a total of 10,00000(1 million) credit. He has a Outstanding claim with company worth Rs-15000. Electricity average bill is Rs3000. His firms total turnover is 10000000. He has taken a loan of Rs 1000000 for which he pays Rs 10000 as interest. His average stock pressure is Rs 500000.
So Step Wise Return on investment calculation is mention below
Return on Investment formula calculator Formula