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bjbj Hi, I m Ken Burgin from Profitable Hospitality with our weekly video tip. Return on Investment
is the language that senior management and financial controllers understand. So, if you
want investment in new equipment, it s great to be able to present this figures and make
your case. s have a look at a typical expensive item. Here we ve got an automatic espresso
machine that cost a bit, $10,000. We ve got the cost here. Let s assume that we re going
to be using it for 4 years or 48 months and we estimate that we could get $2,000 for it
when we dispose of it at the end of that time. What s our profit increase from using this
machine through faster _________________ and shorter lines. Well let s assume it s a $100
a week extra, that s $400 a month. If we put in that figure, we ve got a 47.6% return on
investment. So, we ll compare that return with the investment you will get on that money
if you put it in your bank account and it s very attractive but I m sure we can get
more than $100 a week increase profit from the machine like this. What if we had $200
a week increase profit? That s $800 a month. You can see that the return on investment
is terrific. The next example is looking at return on investment for a point of sale system;
$20,000 for the terminals, back office, support, cabling, etcetera and at the end of 48 months,
we re assuming we could get $2,000 for the equipment. If we could get an extra $500 of
profit per month from this system, we ve got a 13.3% return on investment. It s not too
bad but a good system like this can actually yield much better profits than just $500 a
month. Better profits that come through faster turnover of customers, more efficiency in
the kitchen and the bar and greater ______________. What if we could get $1,200 a month extra
in profits, say we ve got a 92.4% return on investment, so it s definitely a strong decision.
The third return on investment calculation is looking at the return on a new website.
There are lots of tied websites around and replacing it with something fresh with a lot
more information functionality is definitely a profitable decision but how profitable?
If we spend $3,000 on it and expected that would be current for the next 2 years, 24
months, and oversee there s no value in that at the end of that time. If we got an extra
$150 profit per month by having more information, more efficiency from the website and possibly
online booking system, that would give us 19.7% return on investment. But, I m sure
you wouldn t get more than $150 extra profit from it. What if it was $250 extra profit
from the new website and see it s an excellent investment. Understanding return on investment
and being able to work out the calculations and present them will have your request for
new equipment and expenditure taken much more seriously by senior management. Here s how
to do it. s a simple calculator. You can download it from the Profitable Hospitality website
and add your own figures to it. m Ken Burgin from Profitable Hospitality with another video
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