What is product ROI calculation ?
The return on investment, or ROI, is a way to measure the success ratio of an investment, whether it’s time or money put into something. product ROI is the return ratio of your product investment, and it can be calculated easily once you know how to calculate ROI.
Why is product ROI calculation so important?
ROI is hugely important. It will tell you whether or not your investments are helping your business grow. It also helps you optimize future investments so that they bring even better results.
Everyone wants to see a return on their investment. If you’re starting a business or adding a new product to your existing business, it’s important to have a good idea of how much you can expect to earn from it.
How to calculate the product ROI?
Calculating ROI is easy. And it tells you how successful your investments were. For example, if you invested $5,000 in a new product and the product made $7,500 after you launched, your return would be $7,500 – $5,000 = $2,500. Your ROI would then be $2,500/$5,000 or 50% on the original investment. before calculating ROI, you should know the all costs through out the product lifecycle.
When estimate how much the new product will cost to develop, produce and bring to market, think of all the costs that related to the new product:
Product Development Cost
Including the cost in the design, engineering, tooling, molding, and prototype manufacturing.
Product Unit Cost
The product unit cost is the cost in batch production.
To get a realistic estimate of your Return on Investment, you also need to take into account costs. There are two types of costs:
- Variable costs: Variable costs mean those costs that only exist when a product is being made. Think of materials, production materials, or labor. Enter the variable costs per product for each year.
- Fixed costs: Fixed costs are costs that occur independently of the number of products made. Think of loans, insurance, rent, gas, electricity, water, or phones.
Product Unit Selling Price
What is the price that you will ask for each product? The price can vary depending on how much buyers are willing to pay, how much the seller is willing to accept, and how competitive the price is in comparison to other businesses in the market. Think about whether you are going to increase or decrease your price during the years. If you think that your price will change within a year then take the average price.
Estimated Selling Quantities
Estimated selling quantities based on the number of similar products sold in the past.
Product ROI Calculator
The calculator below will help you figure out if your investment on new product is going to be worth it.