Your business’s rate of return is the ratio between profit gained and total investment during a given period. Or in other words, if your balance is positive, that means that your profits are greater than the value you’ve invested in the company. Following this indicator is important in evaluating whether the decisions you’re taking are bringing good results and whether your money’s being well spent.
Below we list 5 mistakes that result in your business having an unsatisfactory rate of return. Check it out!
1. Investing in products that aren’t in demand
Before investing in a new product, even if it’s a high quality product, you need to evaluate whether it will receive a warm reception from your customers. If not, you run the risk of investing capital in something that will remain in storage losing money. In other words, you’ll be spending money that won’t result in any financial return for your company.
2. Not retaining your customers
You need to focus your efforts on attracting new customers for your business and leveraging your sales. However, you should also be concerned with retaining the customers that you’ve already won. This will greatly lower your customer costs, guaranteeing you greater profitability than if you concern yourself solely with new customers.
In order to retain your customers, you need to invest in improving your relationship with them by offering them positive buying experiences and, if possible, structuring a post-sales process.
3. Maintaining very high operational costs
Controlling costs is fundamental to knowing precisely how much your company spends to maintain its activities, and if this represents a risk of future losses.
However, this variable can also directly affect your business’s rate of return. When costs are high, profitability is compromised — even if your revenues are high, a large part of them will be used to cover your costs – which directly affects your rate of return given that it directly depends on your net profits.
That being true, you need to identify and create controls that will help you visualize where your money is being spent, which costs are superfluous, and what actions need to be taken to reduce them.
4. Ignoring delays in payment
Ignoring delays in payment is a serious mistake, because even if your revenues are high, this will affect the value that’s effectively entering your company’s accounts. Or in other words, this affects profit, which affects your business’s rate of return.
To avoid this, you need to keep track of it and find ways to diminish these delays – such as creating a debt collection policy and finding more efficient ways to restrict credit, for example.
5. Not taking advantage of technology can also diminish your business’s rate of return
Investing in technology helps automate processes, diminishes the risk of errors, makes your data safer and more reliable, and improves data sharing, which makes your processes more agile and efficient, among other benefits. Investing in a solution that helps optimize your financial routines will help you reduce costs, which will later be reflected in your rate of return.
In general, you need to identify these mistakes that hurt your business’s rate of return and seek solutions that will resolve these problems. Ignoring these issues or not knowing about them is something that can seriously affect your business’s financial health, and in the long run, your business’s staying power in the market.