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Return on Investment: There’s No One Size Fits All

Every company can employ multiple strategies to promote improvement, but the path chosen will have a critical impact on the long-term success of the business.

Whether you’re thinking about building an entirely new DC or upgrading an existing one, it is essential to accurately gauge the potential profit from investing time and money in that endeavor. Deciding how best to invest in competing alternatives is a principle function of management.

Evaluating the ROI (Return on Investment) of an investment opportunity is critical. To help locate these opportunities, use ROI as a guide – this will offer the most desirable return based on the amount you’re able to invest. Two of the more common evaluation tools are (1) the Internal Rate of Return (IRR) and (2) the Present Net Value (NPV). These two methods are similar in that they both use discounted cash flows. A discounted cash flow is simply the value of future cash flow (revenue or expense) expressed in today’s dollars.

If you were offered $100 that you could have either today or six months from now, which would you take? Today, of course! What if you were offered $100 today or $800 six months from now? Understand that decision process, and you understand the time value of money and discounted cash flow.

Thinking Beyond the Dollar Sign $

Thinking beyond the number of zeros behind the dollar sign is equally important. Your focus should also be on the enrichment of your business’ reputation. Every decision you make, every action you take, the interaction you have, and every detail, is a factor that affects your status. Having sustainable packaging, for example, sends the message that your social responsibility is a priority for your business. This can enhance your relationship with your current customers, as well as attract new customers that support the cause.

Where Do We Go from Here?

Data is your bread and butter. Start by evaluating your organization. Everybody’s strategy is unique from organization to organization. There is no one-size-fits-all fleece snuggie you can cozy up inside and call it a day.

Put in the legwork, evaluate your business, look at the data, and work with your team to develop a strategy. Deciding how best to invest in competing alternatives is a principle function of management. By considering the tools and methods available, you can make better informed, logical choices when evaluating various investment opportunities.

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