Return On Investment - ROI

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What is 'Return On Investment - ROI'

A performance measure used to evaluate the efficiency of an investment or to
compare the efficiency of a number of different investments. ROI measures the
amount of return on an investment relative to the investments cost. To calculate
ROI, the benefit (or return) of an investment is divided by the cost of the
investment, and the result is expressed as a percentage or a ratio.
The return on investment formula:

In the above formula, "Gain from Investment refers to the proceeds obtained
from the sale of the investment of interest. Because ROI is measured as a
percentage, it can be easily compared with returns from other investments,
allowing one to measure a variety of types of investments against one another.

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BREAKING DOWN 'Return On Investment - ROI'

Return on investment is a very popular metric because of its versatility and

simplicity. Essentially, return on investment can be used as a rudimentary gauge
of an investments profitability. ROI can be very easy to calculate and to interpret
and can apply to a wide variety of kinds of investments. That is, if an investment
does not have a positive ROI, or if an investor has other opportunities available
with a higher ROI, then these ROI values can instruct him or her as to which
investments are preferable to others.
For example, suppose Joe invested $1,000 in Slice Pizza Corp. in 2010 and sold
his shares for a total of $1,200 a year later. To calculate the return on his
investment, he would divide his profits ($1,200 - $1,000 = $200) by the
investment cost ($1,000), for a ROI of $200/$1,000, or 20%.
With this information, he could compare the profitability of his investment in Slice
Pizza with that of other investments. Suppose Joe also invested $2,000 in BigSale Stores Inc. in 2011 and sold his shares for a total of $2,800 in 2014. The
ROI on Joes holdings in Big-Sale would be $800/$2,000, or 40%. Using ROI, Joe
can easily compare the profitability of these two investments. Joes 40% ROI from
his Big-Sale holdings is twice as large as his 20% ROI from his Slice holdings, so
it would appear that his investment in Big-Sale was the wiser move.

Limitations of ROI
Yet, examples like Joe's reveal one of several limitations of using ROI, particularly
when comparing investments. While the ROI of Joes second investment was
twice that of his first investment, the time between Joes purchase and sale was
one year for his first investment and three years for his second. Joes ROI for his
first investment was 20% in one year and his ROI for his second investment was
40% over three. If one considers that the duration of Joes second investment
was three times as long as that of his first, it becomes apparent that Joe should
have questioned his conclusion that his second investment was the more
profitable one. When comparing these two investments on an annual basis, Joe
needed to adjust the ROI of his multi-year investment accordingly. Since his total
ROI was 40%, to obtain his average annual ROI he would need to divide his ROI
by the duration of his investment. Since 40% divided by 3 is 13.33%, it appears
that his previous conclusion was incorrect. While Joes second investment earned

him more profit than did the first, his first investment was actually the more
profitable choice since its annual ROI was higher.
Examples like Joes indicate how a cursory comparison of investments using ROI
can lead one to make incorrect conclusions about their profitability. Given that
ROI does not inherently account for the amount of time during which the
investment in question is taking place, this metric can often be used in
conjunction with Rate of Return, which necessarily pertains to a specified period
of time, unlike ROI. One may also incorporate Net Present Value (NPV), which
accounts for differences in the value of money over time due to inflation, for even
more precise ROI calculations. The application of NPV when calculating rate of
return is often called the Real Rate of Return.
Keep in mind that the means of calculating a return on investment and, therefore,
its definition as well, can be modified to suit the situation. it all depends on what
one includes as returns and costs. The definition of the term in the broadest
sense simply attempts to measure the profitability of an investment and, as such,
there is no one "right" calculation.
For example, a marketer may compare two different products by dividing
the gross profit that each product has generated by its associated
marketing expenses. A financial analyst, however, may compare the same two
products using an entirely different ROI calculation, perhaps by dividing the net
income of an investment by the total value of all resources that have been
employed to make and sell the product. When using ROI to assess real
estate investments, one might use the initial purchase price of a property as the
Cost of Investment and the ultimate sale price as the Gain from Investment,
though this fails to account for all of the intermediary costs, like
renovations, property taxes and real estate agent fees.
This flexibility, then, reveals another limitation of using ROI, as ROI calculations
can be easily manipulated to suit the user's purposes, and the results can be
expressed in many different ways. As such, when using this metric, the savvy
investor would do well to make sure he or she understands which inputs are
being used. A return on investment ratio alone can paint a picture that looks quite

different from what one might call an accurate ROI calculationone

incorporating every relevant expense that has gone into the maintenance and
development of an investment over the period of time in questionand investors
should always be sure to consider the bigger picture.

Developments in ROI
Recently, certain investors and businesses have taken an interest in the
development of a new form of the ROI metric, called "Social Return on
Investment," or SROI. SROI was initially developed in the early 00's and takes
into account social impacts of projects and strives to include those affected by
these decisions in the planning of allocation of capital and other resources.
For a more in-depth look at ROI, see: FYI on ROI: A Guide to Calculating Return
on Investment.

Return on investment
From Wikipedia, the free encyclopedia

This article is about the term in investing. For articles on other subjects having the same
abbreviation, see ROI.
This article needs additional citations for verification. Please help improve this
article by adding citations to reliable sources. Unsourced material may be challenged and
removed. (April 2016) (Learn how and when to remove this template message)
Return on investment (ROI) is the benefit to an investor resulting from an investment of some
resource. A high ROI means the investment gains compare favorably to investment cost. As a
performance measure, ROI is used to evaluate the efficiency of an investment or to compare the
efficiency of a number of different investments.[1] In purely economic terms, it is one way of
considering profits in relation to capital invested.
Contents
[hide]

1Purpose
o

1.1Risk with ROI usage

2Calculation

2.1Property

2.2Marketing investment

3See also

4References

Purpose[edit]
In business, the purpose of the "return on investment" (ROI) metric is to measure, per period, rates
of return on money invested in an economic entity in order to decide whether or not to undertake an
investment. It is also used as indicator to compare different project investments within a project
portfolio. The project with best ROI is prioritized. Recently, the concept has also been applied to

scientific funding agencies (e.g. National Science Foundation) investments in research of open
source hardware and subsequent returns for direct digital replication. [2]
ROI and related metrics provide a snapshot of profitability, adjusted for the size of the investment
assets tied up in the enterprise. ROI is often compared to expected (or required)rates of return on
money invested. ROI is not net present value-adjusted and most school books describe it with a
"Year 0" investment and two to three years income.
Marketing decisions have obvious potential connection to the numerator of ROI (profits), but these
same decisions often influence assets usage and capital requirements (for example, receivables and
inventories). Marketers should understand the position of their company and the returns expected. [3]
In a survey of nearly 200 senior marketing managers, 77 percent responded that they found the
"return on investment" metric very useful.[3]
Return on investment may be calculated in terms other than financial gain. For example, social
return on investment (SROI) is a principles-based method for measuring extra-financial value (i.e.,
environmental and social value not currently reflected in conventional financial accounts) relative to
resources invested. It can be used by any entity to evaluate impact on stakeholders, identify ways to
improve performance, and enhance the performance of investments.

Risk with ROI usage[edit]

As a decision tool it is simple to understand. The simplicity of the formula allows to freely choose
variables e.g., length of the calculation time, if overhead cost should be included, or details such as
what variables are used to calculate income or cost components. To use ROI as an indicator for
prioritizing investment projects is risky, since usually little is defined together with the ROI figure that
explains what is making up the figure.
When long term investments take place, the need for Net Present Value adjustment is high. Similar
to Discounted Cash Flow you should use Discounted ROI instead.

Calculation[edit]
For a single-period review, divide the return (net profit) by the resources that were committed
(investment):[3]
return on investment = Net income / Investment
where:
Net income = gross profit expenses.
investment = stock + market outstanding[when defined as?] + claims.
or
return on investment = (gain from investment cost of investment) / cost of investment [1]
or
return on investment = (revenue cost of goods sold) / cost of goods sold

Property[edit]
Complications in calculating ROI can occur when real property is
refinanced, or a second mortgage is taken out. Interest on a second, or
refinanced, loan may increase, and loan fees may be charged, both of
which can reduce the ROI, when the new numbers are used in the ROI
equation. There may also be an increase in maintenance costs and
property taxes, and an increase in utility rates if the owner of a residential
rental or commercial property pays these expenses.

Complex calculations may also be required for property bought with an

adjustable rate mortgage (ARM) with a variable escalating rate charged
annually through the duration of the loan.

Marketing investment[edit]
Marketing not only influences net profits but also can affect investment
levels too. New plants and equipment, inventories, and accounts receivable
are three of the main categories of investments that can be affected by
marketing decisions.[3]
RoA, RoNA, RoC, and RoIC, in particular, are similar measures with
variations on how 'investment' is defined.[3]

Yes, There Really Are Ways Of Evaluating Channel

Incentive ROI
Posted on January 26, 2016 by Channel Marketer Report in Channel Programs, Channel
ROI, ChannelViews, Featured Posts

By Dan Hawtof, Blackhawk Engagement Solutions

Channel marketers offer a constant variety of incentive programs to motivate behaviors across the board, from
headquarter principals and sales reps to sales engineers, distributors and anyone else they can reach. They do it with
SPIFs, deal registration programs, seed-unit discounts and more, all designed to reward for specific sales and nonsales activities.
And channel marketers are good at it. You know this, since you probably are one. But measuring the individual or
cumulative ROI on those efforts? Thats a little different story. Given the complexity of channel programs, and the
difficulty of obtaining reliable reporting, you may have simply given up trying to determine whats working, whats not
and why. But dont feel bad: Weve all been there.

So heres the good news. There really are proven methods of demonstrating channel incentive ROI in quantifiable,
meaningful terms. Well take a high-level look at three of them here. Diligently applying these practices can go a long
way toward transforming your programs from a reluctant cost of doing business into a reliable engine delivering
real-world results.
The Test Control Comparison Method: This method involves evaluating the performance of two like groups, similar
in every way except the variable youre testing for your incentive program. Behaviors are compared during the test
period, and the difference in sales performance determines the effectiveness of the program. There are formulas for
determining group size based on the desired level of accuracy, but a good rule of thumb is 25 percent of your
channel population. There are also formulas for evaluating performance and profitability:
Sales Program Performance = (total $ sales of test group/# partners in the test group) ($ sales of control group/#
partners in the control group). This calculation compares the average impact on sales per channel partner between
the two groups.
Profitability Program Performance = (program performance on sales) X (gross profit margin) (variable costs of the
program, or the amount paid in incentives).
The Behavioral Impact Method: This method employs incentive engineering, in which the focus expands from the
sale itself to the pre- and post-sale behaviors you wish to reward. Make a list of the key behaviors practiced by your
most successful channel partners, and add others youd like to encourage, such as training or improving pipeline
visibility through deal registration. Then assess the relative importance of each behavior, and how often you want it to
occur. This gives you the foundation for allocating your incentive budget, with the reward value for each behavior
aligning with the effort required and its contribution to the final sale.
The Qualitative Insights Method: Want to know how your channel partners perceive your programs effectiveness
and administrative processes? Ask them. These are key insights, because the ease of doing business (EODB) with a
vendor plays a critical role in why your channel partners are participating (or not). Capture the information by
conducting in-depth interviews with open-ended questions. You can also distribute a survey to your broader partner
universe. To maximize participation, provide quantifiable responses such as true or false, multiple choice, 15
rankings, etc. Minimize bias by using an experienced survey designer.
Ideally, youd take advantage of all three methods, since each one provides a different set of data. However, these
procedures are more complex than can be described here, and each has its own set of challenges. For a fuller
explanation of these methods, download ourwhitepaper.
Take the time to understand them in greater depth before putting them into practice. Conducted properly, you may be
pleasantly surprised by how much valuable insight can be extracted from traditionally hard-to-measure channel
incentive programs

How is the return on investment calculated for FMCG

distributor?
3 Answers

Dharvesh Ks
5k Views

Simple Calculation !!
Assume FMCG company gives margin of 10 % as gross margin . Distributor has only one
product. Applicable only all transactions happens in DD and NEFT no credit is involved.
Investment --- Stock investment+ Closing Stock ( lying in god-own)+ stock in transist+
Claims from the company
Fixed Expenses - Rent + Wages + Auditor fee Etc ( RS 10000)---A
Variable Expenses -diesel + EB +VAT + miscellaneous ( Rs 15000)----B

Suppose distributor does Business of Rs 4,00,000 as turnover

10 % margin Comes to Rs .40000
so 40000-expenses (25000)(A+B)= Rs 15000 is the net profit

If Distributor had to invest Rs 300000 as a initial investment

ROI=== Netprofit/ Total investment===>15000/300000====>5 % Per month

When you calculate for the whole year 5 % * 12 = 60 % ROI per year

Predominantly FMCG Companies would ideally give 36% - 40 % as ROI Per year

Wherein if you put the same amount in Bank .They would give you 1.5 %Per month and 18
% per year . Return on investment in bank is 18 %
Written Jul 29, 2015
UpvoteDownvote
Comment
Sha re

Sanjay Mishra, Been an investor and advisor in Indian market since 20 yrs
2k Views

ROI =((Gross income- Expenses)/net investment)*12

Gross Income = margin on invoice + support \incentive earned from company.
Expenses= warehouse rentals+ manpower dedicated + vehicle running cost+ others
investment= (stocks from company + credit in market + investment in offices assets +
vehicle down payment) -co credit.
Most of the companies in India for turnover less than 5 cr per annum offer around 24% per
annum return
Written Aug 3, 2015
UpvoteDownvote
Comment
Sha re

Vikas Chandra, Student

1.5k Views

Another way to look at it is:

ROI for an SKU = (Throughput/Truly Variable cost)*Buffer Stock
where Troughput= Selling Price-Truly Variable cost

Calculating Dealer ROI

This post is co-authored with my good friend Nishit Ganatra who is currently the ASM of Punjab,
J&K for CavinKare. He interned with me at L'Oreal and graduated from XIM, Bhubaneshwar. He
enjoys troubling the Pakistani army by attempting to cross over the border from time to time and
is giving their economists nightmares as he contemplates to sell Chik shampoo across the
border owing to the kindness of his boss.You can find him here.
So probably the first thing that your distributor/dealer/stockist is going to tell you when you go to
him for the first time is Sirjee, ROI nahin baith raha hai. What this simply means is that he is
challenging you to calculate his return on investment.

This is sort of a monthly exercise he knows that he is getting an ROI, else he would not be in
the business. What he simply needs is some ego massage so that he gets an ILLUSION that he
is in control of something when he is not your rates are fixed, your schemes are fixed, and so
are your claims. While ROI is something that they teach us in first day of B-School, calculating
dealer ROI might be a different ball game altogether as he is a weasel who is going to try
different permutations and combinations to get the better of you. Do this properly with him, and
he (and you BDE/TSO who is twice your age but earns half as much) will respect you forever.

The equation is simple Return/Investment, Return = (Earnings Expenses).

The trick lies in realizing what earnings, expenses and investment involve & it is here where the
dealer uses his tricks.

Lets put down the formulae first:

a.

RoI or Return on Investment = Returns/ Net Investment

b.

Returns = Earnings Expenses

c.

Earnings = Gross Margin that the dealer enjoys (Usually 6% - 8% in FMCG companies)

d.

Expenses = Direct Expenses + Indirect Expenses

1.

Here is where the first trick lies, Calculating Expenses:

This arises from the fact that the dealer in question is not dealing with just 1 company, he
instead has 4-5 or even more number of companies that he is dealing with. Hence there are
some resources that he is exclusively using for a particular company for eg. Sales Man and
similarly many resources that he is sharing among the companies eg. His godown space,
accountant, supply units etc.

Please note there is no thumb rule to it as there might be (and more often than not, will be)
cases where even salesmen are being shared among 2 or more companies, and there will be
one guy who would be the accountant-cum-manager-cum-supply wala etc. This is where the
concept of direct and indirect expenses comes in.
Hence his expenses are split in to 2 parts i.e. Direct & Indirect Expenses

Direct Expenses are those that the dealer incurs exclusively for the company concerned.

And Indirect Expenses are those that the dealer incurs in totality for the companies for whom
the resource/s is/are being shared.

The only rule in calculating expenses is that you need to take into account the part of expenses
that he is incurring for your company alone. We will see how we do it below.

2.

Similarly the second trick lies in properly calculating the denominator, i.e Net Investment.

A dealers investment comprises of 3 parts : Average Stock that lies in his godown, Average
Market Credit that he extends & Average Claims Outstanding,
Hence,
Investment = Avg Closing Stock + Avg Market Credit + Avg. Claims Outstanding

Here the usual suspect where one may go wrong in calculating Investment is the first variable
i.e. Average Closing Stock of the dealer.

A layman would take the month-end closing stock as the average closing stock for the dealer, or
worse if you do the mistake of asking the dealer what his closing stock is, the beast would tell
you a figure which will be his all time high closing stock in a month.

The typical trend in FMCG is that majority of Pushing, also known colloquially as thokna
(Primary) and Pulling (Secondary) happens in the last week and therefore the last week is not a
true indicator of the entire months activity then why consider last weeks closing stock as his
months closing stock. (To clarify, primary is what your company bills to the dealer and
secondary is what your dealer bills to the retailer)

Confused?, we will deal with it with simplicity. Consider this as the trend of Primary & Secondary
for a dealer in a 4-week cycle of a month

WEEK

OPENING
STOCK

PRIMARY

SECONDARY

CLOSING
STOCK

5, 00,000

50,000

1,00,000

4,50,000

4,50,000

1,00,000

2,00,000

3,50,000

3,50,000

2,50,000

2,50,000

3,50,000

3,50,000

5,50,000

4,00,000

5,00,000

The above table is how a dealers inventory in a typical FMCG set-up would behave like, i.e.
majority of activity happening in the last week and hence one would be wrong in taking 5,00,000
(Week-4 Closing Stock) as the average closing stock for that dealer in that month.
The better way to do it is to take an average of all 4 weeks closing stocks. In this case it would
come out to be as : ( 4,50,000 + 3,50,000 + 3,50,000 + 5,00,000) / 4 which equals to 4,12,500
which is lesser than the previous result and hence his investment goes down and RoI goes up.

Enough of this gyaan now, let us get straight down to calculating a sample ROI

Premise:
Mr. Atul Mittal is the proud owner of his distribution firm M/S Bhagat Ram Jwala Prasad. His firm
deals with distributing 4 companies in total of which ABC Pvt. Ltd. Is one for which we need to
calculate the RoI. The firm has 1 dedicated (exclusive) salesmen working for ABC Pvt. LTd. with
a monthly salary of INR 6,000/- per month per salesman. Apart from this, the firm also has an
accountant-cum-manager with a monthly salary of INR 5,000/- per month, pays a monthly rent
for the godown which comes to INR 5,000/- per month, incurs electricity & miscellaneous costs
(supply units, chai-paani etc.) to the tune of INR 5,000/- per month. Other expenses such as his
sons education and his daughters marriage which your dealer would want to include are not to
be included.

All figures are assumptions

Monthly Business (Turnover) inclusive of all 4 companies: 20,00,000/-;
Monthly Business (Turnover) of ABC Pvt. Ltd. : 8,00,000/ABC Pvt. Ltd.s Company Margin: 8%
Average Market Credit for ABC Pvt Ltd. Is 10,000/- INR
Average Closing Stock for ABC Pvt. Ltd is worth 2,50,000/- INR
Average Claims Outstanding in ABC Pvt. Ltd. Is worth 10,000/- INR.

Hence going by the formula:

RoI or Return on Investment = Returns/ Net Investment

Returns = Earnings Expenses

Earnings = Gross Margin that the dealer enjoys (Usually 6% - 8% in FMCG companies)

Expenses = Direct Expenses + Indirect Expenses

Lets calculate each element one by one:

Earnings = Gross Margin = 8% of monthly turnover of ABC Pvt. Ltd. which is = 64,000/Expenses = Direct Expenses + Indirect Expenses
Direct Expenses = Salary of Exclusive Salesmen = 1*6000 = 6000 per month
Indirect Expenses for ABC Pvt. Ltd.=( Contribution of ABC Pvt. Ltds Turnover to Total Turnover)
* Total Indirect Expenses
Total Indirect Expenses = Godown Rent + Managers Salary + Miscellaneous Expenses = 5,000
+ 5,000 + 5,000 = 15,000/-

Contribution of ABC Pvt. Ltds Turnover to Total Turnover = 8,00,000/20,00,000=40%

Hence, Indirect Expenses for ABC Pvt. Ltd. = 40% of 15,000/- = 6,000/Therefore Total Expenses = 6,000 + 6,000 = 12,000
Hence Returns = Earnings Expenses = 64,000 12,000 = 52,000
Net Investment = Avg. Closing Stock + Avg. Market Credit + Avg. Claims Outstanding =
2,50,000 + 10,000 + 10,000 = 2,70,000
Therefore RoI = Returns/Net Investment = 52,000/2,70,000 = .1925 or 19.25%

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42 comments:

1.
AnupriyaJune 14, 2012 at 8:50 PM
Just a point here....when you look at his investment in stock - one
should always check whether he has taken bank loan. if he has then his
actual capital investment is actually only to the extent of his own
money. rest is interest which is part of expenses. a lot of dsitributors
conveniently miss out this part of the equation. and for big distributors
this
makes
a
big
difference
in
ROI.
Similarly, if the distributor has a good overdraft facility then he actually
pays for the stocks to the company from that and not his actual
investment. here again interest should be added into his expenses and
the investment reduced by the overdraft amount.

1.

prashantApril 25, 2013 at 6:59 AM

That's a very important point...

2.
KaushikJune 14, 2012 at 8:53 PM
Thanks Anupriya! Duly noted :)

3.
KiranJune 14, 2012 at 11:19 PM
Alternatively, if a distributor rotates his investment say, 10 times a year,
multiply that by net profit percentage per rotation.
For eg:
The company gives a margin of 5% on its products to a distributor.
After all his distribution expenses, the net profit % is 2.1, and his
investment is 20L with an annual turnover of 200L, ROI is easily
calculated as under.
No:of rotations = annual turnover/investment = 200/20 = 10
rotations/year
Investment = 20 Lakhs
This means he rotates his investment of 20lakhs, 10 times a year, each
time making say 2.1%. So his ROI is 10*2.1 = 21%

4.
KaushikJune 14, 2012 at 11:33 PM
Thanks Kiran! Duly noted. Please feel free to contribute in the further
posts also!

5.
Sambhav JainJune 14, 2012 at 11:48 PM
Very Well Explained.!Thanks

6.
Ashish ShahJune 15, 2012 at 12:05 AM
Very helpful. A much needed initiative. Thanks Kaushik! :)

7.
Tirthadeep DharJune 15, 2012 at 7:02 AM
Brilliantly explained - Subbu and Nishit! I remember looking for
somebody or something to teach me this, about a year back. That my
dist. ridiculed me abt not knowing my ROI calculation was the 'push
comes to shove' part.
However, lets not forget a very important parameter of credit given by

the company to the distributor which can range from 0 to anything.

So if Credit = 7 days, 7 days of closing stock is deducted from the
distributor's investment. Also a distributor gives a cash discount to
wholesale or even retail, so that too has to be accounted for. I would
urge you to simplify this and put it up as ur article is crisp and clear and
this could prove useful too.
Recommendation:
1) Teach them how to calculate a Super Stockist ROI as well. Far
simpler than direct.
2) Also, in your next article you could explain how to get back an
uninterested distributor on track based on key parameters. (Kaushik
you had aced that, Nishit you could share too... btw sup with you?)
3)All distributors are swines with hair coming out of all their holes..
jusayin....they might not squeal but they do grunt a lot. Somebody has
got to tell these kids that... Nishit you could elaborate I guess (this
inference from ur fb statuses)
And excellent explanation Kiran... was thinking abt that while reading
the article.
Cheers,
TiTo

8.
Capt.KrunchJune 15, 2012 at 8:52 AM

hey TiTo,
hw u doing man....
points noted dude....the upcoming posts will only highlight the point
number 3 that u ve mentioned.
may be we could come up with a post about how to tinker RoI to get
back distributor's interest provided he is sitting on a lesser RoI...
would urge you also to contribute...and about explaining credit,
wholesale discount, we intentionally didn't go into the detail to avoid it
from getting complicated...
nevertheless thanks for the feedback.
Cheers
nishit

9.
Tirthadeep DharJune 15, 2012 at 10:47 AM
Sure would love to contribute... but I would rather start by trying and
provide some comic relief between intense FMCG sessions :P

10.
Amber VermaSeptember 26, 2012 at 7:15 PM

Thanks

All

of

you.

re,
amber verma

11.
Kapil GuptaFebruary 8, 2013 at 4:26 AM
Realy good explained ....Thanxxxx

12.
Robin Godara BishnoiFebruary 21, 2013 at 9:46 AM
thanks dear

13.
vibhor srivastavMarch 4, 2013 at 12:06 AM
very helpful.....thanks....for explanation of ROI insuch a way....
thanks.............

14.
avik dasMarch 20, 2013 at 10:51 AM

Can anybody exactly explain followingper month

Sales: 10 Lac
Margin: 3%
Inventory: 2.5 lac
Market credit: 2.5 lac
Case 1: No credit from company to distributor
Case 2: 7 days credit from company to distributor
Case 3: 30 days credit from company to distributor
Pls explain the concept also
Thnx

15.
Ankit DwivediApril 12, 2013 at 6:14 AM
GOOD explanation......... but one doubt is there in example. ROI is
19.25%, as per calculation this is monthly ROI but monthly ROI would
be 1.5-2.5%

1.

rajesh srivastavaJune 20, 2013 at 3:43 AM

same doubt I have also. Could you plz explain it why.

2.
SivaJanuary 28, 2014 at 3:13 AM
52k profit out of 2.7L investment is only fictionally possible

16.
Ankit DwivediApril 12, 2013 at 6:27 AM
avik das......
if no expenses are there then
case 1: roi is 6%
case 2: roi is 7.2%
case 3: roi can't calculate....... because there are no investment.

1.

samDecember 18, 2013 at 1:59 AM

please show the working for case 2 please...

17.
Davidraja J E SamJune 15, 2013 at 10:32 PM

hi

Ankit

could

you

please

explain

the

second

case..

David

18.
Rhishabh SuritJune 28, 2013 at 11:32 PM
davidraja....
if market credit is given for 7 days.. then average market credit would
be 75% of inventory, thus total invenstment wud turn out to be 4.2lac..
hence ROI wud turn out to be 7.1% (guys plz correct if im wrong .. not
from fmcg background)

19.
jjkljljJuly 23, 2013 at 1:45 PM
This comment has been removed by the author.

20.
Munish KaulJuly 23, 2013 at 1:52 PM
aa you are very close to being right if market credit = 2.5 lac
for 7 days market credit = 75% of inventory
= 75/100*2,50000 = 1,87500

total investment would be = 2,50000+1,87500 =4,37500

margin is 3% of sale of 10,0000 = 30000
so, Return on investment is = returns/total investment
ie : 30000/437500 which comes out to be 6.8 % or you can say 7%
but how come you came to conclusion that average market credit for 7
days = 75% of inventory cost ???

1.

MadhavAugust 11, 2013 at 2:46 PM

I believe, he has not taken it as 75%..but..for 30 days..stock is 2.5
lacks..so for 7 days it's 2.5 lacs* 7/30~=58300....So net
investment
in
inventory=2,50000-58300=191700.....So,
roi comes to be 6.7%..I think so...
2.
chandan kumar balSeptember 10, 2013 at 1:24
AM
Hi what is the healthy ROI for FMCG Distributors(as u told
margin is between 6%-8%)? Is it between 14%-24%?
3.
AyushNovember 19, 2013 at 8:08 AM

30
days
inventory
is
2.5
Lakhs
so we can calculate inventory for 23 days which comes out to be
(250,000/30)*23=191,667
then
final
investment=
191,667+250,000=
441,667
ROI=
Earning/Net
Investment
=(30000/441,667)*100
=6.7%

21.
vickyNovember 13, 2013 at 2:39 AM
HI can any one confirm the standard norms for the ROI & Investment.
If some one having please share @ vikasmendi@gmail.com

22.
Bipin BhanushaliFebruary 7, 2014 at 9:14 AM
can
anyone
clear
my
following
doubt
Investment include Avg Closing Stock + Avg Market Credit + Avg.
Claims Outstanding OK.... but what about deposit given for taking
godown on rent and down payment done for purchasing vehicle do
these investments are consider for calculation of net investment and if
not then what would be consideration for them

23.

pranoy paulApril 10, 2014 at 12:05 AM

thanks dear

24.
KapsMay 11, 2014 at 2:51 AM
This comment has been removed by the author.

25.
KapsMay 18, 2014 at 11:42 PM
Hi..Can
someone
help
me
crack
this..
Distributor does a 20Lac business per month. Earns Gross Margin of
10%, Exp per months comes to around 2%. Avg Inventory: One month,
Avg Market Outstanding of 45 days. No claims outstanding. No
company outstanding. Funding purely from internal resources. Doesn't
have
any
other
co's
distributorship.
I get two different ROIs with different approaches. Turnover/Inv
method and Standard Method of Net Earnings/Investment.

26.
himanshuOctober 14, 2014 at 1:24 AM
In

both

case

it

will

be

38.4

annual

Roi

1st method 160000 *100/ 500000 = 3.2 monthly Roi or 38.4 annual
Roi

2nd method 2400000/5000000 = 4.8 rotations , Earning per rotation 8

% hence annual Roi will be (8*4.8) = 38.4% only

1.

AlphaMay 4, 2016 at 9:32 AM

Can you explain how did you get 5000000 in the 2nd method?

27.
himanshuOctober 14, 2014 at 1:25 AM
in first case read denominator as 50 lac and not 5 lac

28.
Ramaswamy VenkataramanApril 18, 2015 at 1:20 AM
in the second case shouldn't the numerator be the annual turnover ?

29.
qamar khanJune 7, 2015 at 1:36 PM
thanks

30.
AdarshSeptember 12, 2015 at 12:40 AM
Was going through the comment section and found someone
mentioning interest charges on CC or OD being part of the expenses.
This is a valid point of discussion and I have personally faced such
scenarios.
Humbly request the author to give a verdict on this. My understanding
and opinion from many with whom I have shared is...Is a dealer who
continuously needs CC or OD to fulfill his billing commitment, a sound
dealer/distributor?

31.
UnknownMarch 14, 2016 at 9:43 AM
Can anybody explain the following
Abc is a fmcg company
xxx is the product name
Margin of the product for stockist is 10%
Margin of the product for retailer is 20%
Mrp of the product is 25000
cost of stockist is 19120
Retail cost is 20830
What is the method of calculating the margin

32.
biswa nayakApril 12, 2016 at 10:24 AM
ANYONE KNOW THE Healthy ROI for the FMCG channel partner??

33.
AlphaMay 4, 2016 at 9:24 AM
In the comments above, Himanshu spoke about two methods of
calculating ROI. One is the Inventory/Turnover and the other Net
Earnings/Investment. Could you please elaborate a little bit more on the
Inventory/Turnover method.

Hindustan Unilever focuses on ROI

21 November 2011
NEW DELHI: Hindustan Unilever, the FMCG group, is creating specific metrics for
allocating its advertising budget and monitoring payback, as commodity costs put
pressure on the resources available.
The company trimmed its expenditure in this area by almost 2% during the last
quarter mainly due to reductions covering soaps and detergents, two major
categories but revenues rose by 18.5%.
One reason for this reduction in adspend was that its overall outlay had grown over
the previous few quarters, but additional factors, and particularly the surging cost of
raw materials, were also key.

Nitin Paranjape, Hindustan Unilever's CEO, told Moneycontrol: "In a market where
it had not been possible to fully offset all these increases through price increase, the
industry had to find a way to manage ... appropriately."
The owner of Dove, Rin and Lifebuoy traditionally a bellwether for the Indian
consumer goods industry and one of the country's biggest advertisers has faced
steeply rising competition in the recent past.
In determining the appropriate level of spending for the brands within its portfolio,
Hindustan Unilever follows a formula based on a range of indicators.
"We have a certain principle which is unchanged irrespective of which quarter it is
that all our brands must be supported adequately, set to competitive levels and in
line with the goals that each brand has," Paranjape said.
"We measure the share of voice which [each] brand has, we measure how it
compares with respect to the share of market that we have got and we look at it in
terms of the innovation program, etc."
Paranjape suggested that the share of revenues attributed to advertising could
fluctuate between 12% to 14% depending on the exact environment facing the
company.
Alongside this process, the need to demonstrate the effectiveness of
communications has assumed central importance at a time when all outgoings must
come under careful scrutiny.
"It is a big area of expense and just like we subject every other cost in this business
to scrutiny, we subject advertising and promotion to scrutiny as well to maximise
[what] we call the return in marketing investment," Paranjape said.
"We have done a lot of work to remove some waste in the space and the benefit of
that is also getting reflected in the numbers that you see."

Return on Investment (ROI) -FMCG Industry?

how is the ROI calculated by FMCG distributors, what is the average ROI they get. illustrated by giving
example in detail, what is ROI they r getting if they distributors of HUL, p&g in like Delhi & mumbai Cities.
what is the average turnover. What is difference between Net & Gross ROI. PLE Somebody from
the... show more

ROI is the returns you get out of your investments.

Lets say you buy something for Rs. 10000/- and sell it for Rs. 10200/- after a month then the profit you
made in one month is Rs. 200/So return on investment = 24%
Let me explain how:
Returns per month = Rs. 200
Formula for ROI = (Profit * 100) / (Investment * no. of years)
==> ROI = 20000 / (10000 * 0.083)
1 Month in terms of years = 0.083 (1/12)
therefore ROI = 24%
This ROI is the gross ROI.
Lets say you have to pay electricity bill and rent of Rs. 100 for that month then your net ROI is 12%
This 12% is your realized return on investment whereas 24% is your total return on investment