Calculating return on investment (ROI) is critical for businesses, but the manual effort can be tedious.
Luckily, QuickBooks offers easy ROI tracking and calculation through its class tracking features.
In this post, you'll learn step-by-step how to set up ROI tracking in QuickBooks, generate reports to analyze returns, and integrate with Excel for custom analytics.
Introduction to Calculating ROI with QuickBooks
Calculating return on investment (ROI) is an important metric for businesses to track performance over time. QuickBooks Online provides a streamlined way for businesses to calculate ROI right within their accounting software.
Understanding the Importance of ROI
ROI measures the gain or loss generated from an investment relative to the cost of that investment. In other words, it shows whether an investment is worthwhile and helps guide future business decisions. Tracking ROI over time shows whether investments are paying off and if a business's performance is improving. High ROI means an investment is generating substantial gains, while low or negative ROI suggests an investment may not be worthwhile.
ROI Calculation Overview
The basic ROI calculation is:
(Gain from Investment - Cost of Investment) / Cost of Investment
For example, if a business spends $10,000 on new equipment and it directly leads to $15,000 in increased profits, the ROI would be:
($15,000 profit - $10,000 equipment cost) / $10,000 equipment cost = 50%
So for every $1 invested, there was a 50 cent return.
Benefits of Using QuickBooks for ROI
Key advantages of using QuickBooks Online to calculate ROI include:
- Automated calculation based on income and expense data in QuickBooks. No manual number crunching required.
- Real-time tracking as new transactions are entered. Identify performance changes quickly.
- Customizable reporting to calculate ROI for specific investments, jobs, products, etc.
- Exports to Excel for additional analysis and use in presentations.
By leveraging QuickBooks to efficiently calculate ROI, businesses can better understand performance and make data-driven decisions on where to effectively allocate resources.
How do you calculate return on investment ROI?
Key Takeaways
Return on investment (ROI) is an approximate measure of an investment's profitability. ROI is calculated by subtracting the initial cost of the investment from its final value, then dividing this new number by the cost of the investment, and finally, multiplying it by 100.
To calculate ROI in QuickBooks Online:
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Determine the initial cost of the investment. This is how much money was originally invested.
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Determine the final value of the investment. This is how much the investment is currently worth.
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Subtract the initial investment cost from the final value.
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Divide the result by the initial investment cost.
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Multiply the result by 100 to get a percentage.
For example, if you invested $1,000 in new equipment and it increased your profits by $250 in the first year, the ROI would be:
(($250 / $1,000) x 100) = 25%
So you earned a 25% return on your investment in the first year.
Tracking ROI over time in QuickBooks can help assess the profitability of investments and guide future business decisions. Comparing ROI across different investments also helps determine where capital is being used most efficiently.
While ROI measures monetary gain, it is also important to factor in non-monetary benefits when evaluating investments. For example, an investment in new software could improve employee productivity and customer satisfaction. So ROI should be just one data point used to analyze investments, not the sole deciding factor.
How do you record return on investment?
There are a few common ways to calculate return on investment (ROI) in QuickBooks.
The first is a simple ROI formula:
ROI = Net Income / Cost of Investment
To calculate this, you would:
- Determine the net income earned from the investment over a period of time
- Divide that by the total dollars invested
This gives you a percentage representing your ROI.
Another common ROI formula is:
ROI = Investment Gain / Investment Base
Where:
- Investment Gain = Current Value - Original Cost
- Investment Base = Original Cost
You can also use this expanded ROI formula:
ROI = [(Ending Value / Beginning Value) ^ (1 / # of Years)] – 1
This accounts for the duration of the investment and compounding returns.
Let's look at an example. Say you purchased machinery for your business on January 1st for $12,500. On August 24th of the same year, the machinery was worth $15,200.
The ROI would be:
- Regular ROI = ($15,200 - $12,500) / $12,500 = 21.6%
- Annualized ROI = [($15,200 / $12,500) ^ (1 / ((Aug 24 – Jan 1)/365) )] -1 = 35.5%
The annualized ROI shows what the projected returns would be if compounded annually.
Recording these transactions and running ROI reports can be done right within QuickBooks. This allows you to accurately track performance over time.
What is the formula for ROI accounts?
The basic formula for calculating ROI (return on investment) in QuickBooks is:
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
To break this down:
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Gain from Investment is the money earned from the investment. This could be revenue, net profit, or other earnings generated.
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Cost of Investment is how much money was originally invested.
For example, if you invested $1,000 in new equipment and it helped generate $1,500 in additional revenue, the ROI would be:
ROI = ($1,500 - $1,000) / $1,000 = 50%
So for every $1 invested, you generated $0.50 in return.
Some key things to note with ROI in QuickBooks:
- It's a useful metric for tracking performance of investments and assets over time
- Higher ROI percentage indicates better return on money invested
- You can calculate ROI for individual assets or investments as well as overall business ROI
- Negative ROI means the costs exceeded the gains from that investment
To find the inputs needed to calculate ROI, you can use QuickBooks reports such as the Profit & Loss and Balance Sheet. Identify revenue/gains tied to that investment as well as the original and ongoing costs.
Tracking ROI over time helps assess if investments are paying off and contributing positively to your bottom line. Setting ROI goals and benchmarks can also help guide future decision making on where to allocate resources.
How do you record ROI?
Calculating ROI in QuickBooks is straightforward once you understand the basic formula. Here are the key steps:
Gather Data
First, pull the relevant data in QuickBooks:
- Marketing campaign costs: Run a Profit & Loss report for the period and filter by your marketing expenses category to sum the total spend.
- Revenue growth: Run a year-over-year Profit & Loss or sales report to compare revenue growth over the period you ran the marketing campaign.
Calculate ROI
Plug the numbers into the ROI formula:
ROI % = (Revenue Growth - Marketing Costs) / Marketing Costs x 100
For example, if your marketing campaign cost $1,000 and you saw $5,000 in incremental sales revenue, your ROI would be:
($5,000 - $1,000) / $1,000 x 100 = 400%
So your ROI was 400%, meaning for every $1 spent, you generated $4 in return.
Record in QuickBooks
To track ROI over time, set up a separate income account in QuickBooks called "Marketing ROI" and record the calculated returns as credits to offset your marketing expenses.
This allows you to run reports showing both marketing costs and the associated returns to easily track performance over time. Comparing ROI period-over-period can help you determine the effectiveness of your marketing initiatives.
Recording ROI directly in your QuickBooks chart of accounts ties the metric back to your financial data, keeping your analysis reconciled and audit-ready.
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Setting Up QuickBooks for ROI Tracking
To effectively track return on investment (ROI) in QuickBooks, some initial setup is required. This involves enabling key features and creating classes to categorize investments and related transactions.
Enabling Features for ROI Tracking
QuickBooks provides several features that can assist with ROI tracking:
- Enable classes to categorize transactions by investment. This allows you to tag inflows and outflows to specific investments.
- Turn on multiple currencies if you have investments in foreign currencies. This automatically handles conversion when entering transactions.
- Activate inventory tracking if your investments include physical products. This connects revenue and cost of goods sold.
Creating Classes for Investments
Once classes are enabled, create a class for each investment you want to track:
- Name each class after the investment (e.g. "Store Location 1", "Product Line A")
- Set a class for the pre-investment state to track baseline revenue/expenses
- Create classes for any incremental operating costs related to investments
Tagging all transactions related to investments, both income and expenses, is crucial for accurate ROI reporting.
Tagging Transactions for Accurate ROI Tracking
When entering any transaction tied to an investment, always tag it with the appropriate class:
- Sales receipts: Tag revenue by investment class
- Bills/expenses: Tag costs to associated class
- Checks/credit cards: Tag any investment-related payments
- Invoices: Tag invoice line items by class
Taking the time to properly tag all transactions by class is essential to produce meaningful ROI results in QuickBooks reports.
Following this setup will allow you to run accurate ROI reports by class across investments. Be diligent in tagging every related transaction by class for clarity into which investments are generating the highest returns.
Calculating ROI on Investments in QuickBooks
Calculating return on investment (ROI) is an important way to measure the profitability of investments and guide future decision making. QuickBooks provides built-in tools to generate the data required to calculate ROI.
Generating Class Reports for ROI Analysis
The class tracking feature in QuickBooks enables categorizing transactions by investment. To calculate ROI, first create a class for each investment. Under Reports, run a "Class" report to view income and expenses per investment class. This provides the key figures required for ROI analysis.
Analyzing Investment Returns Using QuickBooks
With the class profit and loss figures, calculate ROI using the formula:
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
For example, if an investment of $10,000 generated income totaling $15,000 over the year, the ROI would be:
ROI = ($15,000 - $10,000) / $10,000 = 50%
Analyze returns across investments to determine which are most profitable.
Comparing ROI Across Investments with QuickBooks Reports
The QuickBooks class reports enable easy comparison of returns across different investments. Rank investments by ROI to visualize which are generating the highest returns. Trend ROI over time to determine if returns are increasing or decreasing. QuickBooks empowers data-driven investment decisions.
Leveraging QuickBooks Free Tools for ROI Calculation
QuickBooks Online offers a profit and loss statement generator to calculate income and expenses used for ROI analysis. The report customization enables filtering by investment class. Additionally, the ROI formula can be set up as a custom field within QuickBooks Online for easy access. QuickBooks provides the tools to effectively measure investment returns.
Integrating QuickBooks with Excel for Advanced ROI Analysis
QuickBooks provides robust tools for calculating return on investment (ROI). However, integrating with Excel unlocks additional functionality for more advanced analysis.
Exporting Data to Excel
To export QuickBooks data:
- Navigate to Reports > Company & Financial
- Select the report you want to export (e.g. Profit & Loss)
- Click Export > Excel
This will download an Excel file with your financial data.
Using Excel Formulas for ROI
Once the data is in Excel, you can use formulas like:
=B2/B5to calculate ROI=B7*B8to find net income=VLOOKUP()to compare across periods
This enables more complex ROI dashboards.
Creating Custom ROI Dashboards in Excel
With Excel, you can create custom views of ROI over time.
For example, make a line graph showing ROI by month. Or a pivot table summarizing ROI by department.
Excel provides versatility for data analysis that complements QuickBooks' accounting tools. Together, they facilitate robust ROI tracking and forecasting.
Tips for Tracking ROI Long Term in QuickBooks
Setting ROI Targets in QuickBooks
Setting clear ROI targets in QuickBooks can help evaluate investment performance against goals over time. Here are some tips:
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Create separate QuickBooks classes for each investment you want to track ROI for. Name them intuitively based on the investment.
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Enter the target ROI percentage for each investment class. Go to the Gear icon > Account and Settings > Advanced Inventory Settings > Custom Fields.
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When making investments, code transactions to the relevant class. This will allow you to run class-specific reports later.
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Run a class Profit & Loss report annually to compare actual ROI to targets. Adjust investments if needed.
Automating ROI Reports in QuickBooks
Automating QuickBooks reports ensures you consistently review latest returns on investments:
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Schedule the class Profit & Loss report to automatically run monthly or quarterly.
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Have the report emailed to stakeholders to drive discussions on performance.
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Set reminders to review reports and ensure targets are being met. Make any necessary investment changes.
Maintaining and Updating Classes for Accurate ROI Tracking
Properly maintaining QuickBooks classes improves long-term ROI tracking accuracy:
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Review classes annually and update names if investments have changed.
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Delete unused classes no longer representing active investments.
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Add new classes for any new investments made each year.
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When investments end, mark classes as inactive but retain for historical reporting.
Following these QuickBooks best practices will lead to better insights into ROI over time. Setting targets, automating reports, and properly maintaining classes is key.
Conclusion: Maximizing ROI with QuickBooks
Using QuickBooks Online to calculate return on investment (ROI) provides businesses with an efficient way to track performance and make data-driven decisions. Here are some key takeaways:
Key Takeaways on ROI Calculation in QuickBooks
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QuickBooks Online integrates seamlessly with other systems to pull financial data automatically, ensuring ROI calculations are based on up-to-date information. This saves time and effort compared to manual data entry.
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The custom report builder and Excel integration features allow businesses to set up customized ROI reports that meet their specific needs. These can be scheduled to run automatically on a regular basis.
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Tools like budget tracking, forecasting, and performance dashboards make it easy to identify trends and opportunities to improve ROI over time.
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By centralizing ROI analysis in QuickBooks Online, data is accessible company-wide. This enables better collaboration between departments on strategic initiatives that boost ROI.
Further Resources for ROI Mastery in QuickBooks
The QuickBooks Online community provides many free resources to help businesses master ROI tracking and analysis:
- ROI calculation templates and sample reports
- Expert tips, ebooks, and guides with actionable advice
- Live and on-demand webinars with QuickBooks specialists
- Support forums to get peer insights
Leveraging these resources, in combination with the powerful QuickBooks Online tools, provides a solid foundation for maximizing return on investment.
