Return on Sales – The Bottom Line
14th June 2013
Return On Sales (ROS) is the KPI (Key Performance Indicator) that many dealers talk of when referring to their motor trade business levels of profitability. It is a percentage measurement used to evaluate operational efficiency and is often referred to as the “operating profit margin” or the “bottom line”. Many dealerships consider this KPI to be the one of the most important as it lends itself to various statistics. ROS provides an insight into the profit that your business has retained as a percentage of all of the services and products sold and can also be used to analyse a dealerships’ performance against its own past as well as against other businesses in the same industry.
Return on Sales Calculation
To calculate your R.O.S figure, use the formula below: Net Profit (Before Interest and Tax) ÷ Company Sales (Turnover) x 100 = R.O.S %
Return on Sales Example
You are running a dealership and you sell 20 cars in one month. You sell 10 of your cars for £5,000 each and 10 of your cars for £10,000 each. Your turnover is £150,000. On the cars that you sell, your profit is £1000 per unit, which is a total profit of £20,000. Net Profit (Before Interest and Tax) = £20,000 ÷ Company Sales (Turnover) = £150,000 x 100 Return on Sales = 13.3%
What does it mean?
Return on Sales is a ratio that is best compared over time, looking for any trends that may develop. There is no right or wrong percentage, what you are ideally looking for is that you can see a gradual improvement in your ROS statistics. A decrease could mean that there are financial troubles ahead or that you are working harder for a lower return, whereas an increase suggests that your dealership is becoming more efficient. The bottom line is, the higher the Return On Sales % the better for your motor trade business.
To read more about how to improve your Return on Sales and how Dragon2000 can help you, click here.