Yield can refer to many things, but in the context of running a business it’s used as a measure of how profitable your company is.
In financial terms, yield is typically expressed as a percentage, and is used to compare the income that you generate from an asset or investment to its costs.
For example if you buy stocks for $1 000 and you get $50 in return annually, the yield would be 50/1 000 x 100 = 5%.
Yield versus return on investment
Yield only compares the income an asset generates versus the initial cost of purchasing it.
ROI looks at overall profitability, which takes into account both the income and the way the asset changes in value.
ROI is calculated by taking the net profit—the income minus the cost of investment—divided by the cost of investment x 100.
If you invest $1 000 in a project that generates $1 200 in a year, your ROI would be
(1 200 – 1 000) / 1 000) x 100 = 20%.
The yield for the project, on the other hand, would be the income divided by the initial cost x 100. In this case: 1 200 / 1 000 x 100 = 120%.
Yield is usually calculated on a yearly basis, while ROI can be calculated for any time period.
What is this measure used for in a business
For example, if you run a manufacturing company, yield might be used to refer to the number of products you’ve produced in relation to how much raw material you’ve used, which will say something about how efficient your production process is.
Monitoring in this way also helps your business remain competitive, as it ensures you’re getting the most value out of your resources. It also helps you gauge your efficiency and profitability.
In a service-based business, you can calculate yield by comparing the revenue you generate to the cost of providing the service. If the percentage increases, so does your profitability.
Business owners and managers use this measure to make informed decisions about where to allocate resources, to identify areas for improvement, and to measure the success of strategies they try out. Understanding and improving your yield is key to growing your business.