Measuring Marketing

Chapter 6 Return on Sales

Measurement Need

Understanding the amount of profit produced relative to each dollar of sales.

Solutioni*

Return on sales (ROS) is a measure of a company’s ability to generate profits from sales, effectively described as the profit resulting from each dollar of sales. It is represented as follows:

$ROS=\frac{P_{nbt}}{S}$

Where

ROS = return on sales

Pnbt = net profit before tax

S = sales

Our hypothetical company, Global Publishing (from Chapter 4, “Net Profit”), is quite successful. Its business generated $300 million in sales and, from our earlier net profit calculation, it generated $11.5 million in profits. Calculating the return on sales ROS reveals the following:

$ROS=\frac{\$11,500,000}{\$300,000,00}=3.8\%$

The results ...