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Return on Revenue (RoR) is a financial metric that helps businesses evaluate their profitability by comparing the net income to the total revenue generated. This metric provides insights into how efficiently a company utilizes its resources to generate profits. In this article, we will show you how to calculate it, discuss why it’s important, and discuss strategies to improve it.
The formula for calculating Return on Revenue (RoR) is:
Return on Revenue (RoR) = Net Income / Total Revenue
Consider a real-world example of a retail clothing store to calculate the RoR. We'll use the following data for our calculation:
Input the corresponding values from our example:
RoR = Net Income / Total Revenue
RoR = $500,000 / $2,500,000
RoR = 0.2 or 20%
In this example, the Return on Revenue (RoR) for the retail clothing store is 20%. This means that for every dollar of revenue generated, the store can retain 20 cents as profit.
Understanding Return on Revenue (RoR) is essential for businesses for several reasons:
Here are some strategies that can help increase your RoR:
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