Tips for increasing the ROI on your innovation
The return on investment (ROI) of an innovation is calculated by dividing the profits of a new product/service by the research, development, and other direct costs of creating the new product/service.
So, to increase your ROI you have two levers:
a) Increase the profits from delivering your new product/service
b) Decrease the cost of developing the new product/service
Upon reading these, it is likely that numerous valid ideas spring to mind, such as:
- Create a product which your customer will value and be willing to pay a higher price for.
- Ensure the new product can be supplied at low cost to increase your resulting profit margins.
- Increase your sales via effective sales and marketing strategies.
- Use efficient processes during development to reduce costs.
However, there is one option that is often overlooked:
Use Government Incentives to discount the cost of your new product/service development.
Here are some tips for ensuring you use government incentives to discount the cost of your new development:
1. Consider whether your new product/service can incorporate an attempt an ‘advance’ in its field of technology or science. This is a key test to qualify for an R&D Tax Credit. Many new product or service developments can pass this test and it can usually be achieved with a minimal additional investment. You can return up to 33% of your costs using this method and you do not have to be successful.
2. Complete a review of the grant landscape – there are numerous general funding options as well as opportunities focused on innovative projects. If your innovation is disruptive or breakthrough, you should certainly explore this method. As an example, eligible Costs are £25k – £2million for the Innovate UK Smart Grant.
BE CAREFUL – many grants are ‘State Aid’s’, so claiming them can affect your ability to claim other state aids on the same project (i.e. R&D Tax Credits under the SME Scheme). This can be navigated with appropriate strategy, but make sure you consider your total return.
3. Explore whether your new product or service is patentable – the Patent Box regime can provide an effective rate of Corporation Tax of 10% on profits generated from qualifying patents. This can be in place for the life of the patent – up to 20 years!
4. Ensure your money is invested in qualifying areas across all these opportunities. R&D Tax Credits, Grants and Patent Box all provide qualifying areas of expenditure. If you ensure your investments fall within these categories, you will increase your total return.