ROS is best used as a measurement of when to grow. It defines whether or not you are in a good position to spend some more.
Knowing this KPI allows you to strategize, can you stretch a little more or should you cut back?
- For one, ROS gives you the profit you’re making so you can identify the return you want to reinvest into your company to grow it further.
- Two, return on sales is a reliable metric to aim to increase as the higher the ratio, the more the profit.
- Lastly, you can use the metric to get a picture of your company’s year over year performance as it takes into account both your expenses and revenue.
In contrast, revenue isn’t a reliable metric to measure your businesses’ profitability as your expenses and revenue can vary over time.