What is Return on Sales?
Return on Sales (ROS) is a measure of a company’s profitability that looks at the profit made per unit of sales. It measures the efficiency of a company’s operations and the effectiveness of its online sales campaigns. This metric can help companies identify areas of improvement in their online sales and logistics operations.
Significance of Return on Sales in Logistics and E-commerce
Return on sales is an essential measure of profitability which helps companies identify potential opportunities for increasing sales and profits. Here are some added benefits of return on sales:
- Assesses performance: Return on sales assesses the business’s performance compared to other market competitors to increase revenue generation.
- Improves decision-making: It provides valuable insight into the performance of the business, which can help inform decisions on how to improve the business.
Prerequisites of Return on Sales and How It Works
Return on sales = Operating Profit/Net Sales
Here, operating profit refers to the earnings before interest or EBIT.
Use Cases of Return on Sales
A company generates AUD10,000 in sales and AUD5,000 in expenses.
Profit = Revenue – Expense
= AUD(10,000 – 5,000)
= AUD 5,000
To calculate, Return on Sales we can use the formula
Typically, ROS is presented in percentage. So, ROS, in this case, will be 50%.