By Emily Rollwitz – Content Marketing Executive, Global App Testing
There are so many tools out there to help SMEs compete with big businesses. And cloud services and SaaS solutions can do a lot for small businesses.
But not every software investment is the best one. With so many solutions, features, and prices to choose from, how can businesses make an objective decision?
What is software ROI, and why is it important?
Software return on investment (ROI) is a metric used to determine the financial benefits of investing in software. This could be anything from a new CMS to an iPaaS system that makes it easy to move data across apps.
Measuring software ROI is an integral part of your business analysis process because it allows organizations to make informed decisions about whether or not to invest in a new software system. By putting a number on all the costs and benefits, organizations can make more informed decisions about whether or not it’s worth the cost.
What makes this tricky is that software’s price tag isn’t the only cost. Other factors include the ongoing costs of using and maintaining the system; time spent onboarding team members; and financial risks associated with investing in this system. Also, it is difficult to work out the overall financial benefit of some software, such as a programme used to improve presentations and make them look and feel more professional. While this doesn’t directly generate income, it contributes to any situation where you may be expected to make presentations.
Making better decisions
By understanding the ROI of their investments, businesses can make more informed decisions about where to allocate their resources.
Whether a software company should push out a release now to spur sales or needs to review the Global App Testing smoke testing guide again can be easily determined by ROI. In this case the ROI determines the budget relative to the expected return. If another round of testing would exceed that budget then it’s objectively not worth the money.
Monitoring and controlling costs
ROI is a useful tool for monitoring the performance of software over time because it allows businesses to track and measure the financial benefits.
If software’s pricing model changes, it’s easy to compare the expected cost over the next 12 months to the financial benefit from the previous year. A price increase might be small, but it might be enough to make the software unjustifiable.
Conversely, the software provider might introduce a lower pricing tier with fewer features; if you can put a number on the benefits of specific features, you can make an easy decision on whether to “downgrade” to the cheaper option.
How do you calculate software ROI?
The easiest way to calculate software ROI is to divide the financial benefit of using the software by the costs of the software. This will provide you with a ratio that can be used to compare the ROI of different systems.
One simple way to calculate the new software’s true cost is to take the initial cost of the software and add in the ongoing costs of using and maintaining the system, including subscriptions and pay-as-you-go features.
“Costs” should be as comprehensive as possible, including the total cost per hour taken to onboard the whole team onto the new software. You should also consider the potential risks of this software and consider the resources you’ll need to set aside to mitigate them. This will provide you with a total cost of ownership for the software.
To calculate the expected revenue, you’ll need a baseline to compare it to. How much does it cost you per man-hour to do tasks like email campaigns or processing sales leads with the software you currently use? What are the upfront monthly/yearly costs, and how much free cash flow does that leave you compared to other options?
Only once you have that baseline and can measure your current software ROI can you calculate the expected ROI of new software to streamline those everyday business operations.
What are the benefits of calculating software ROI?
There are many benefits to calculating software ROI.
It helps teams determine whether an investment is worth the cost. But it also allows them to compare solutions and make a business case for the best one.
Additionally, calculating your software ROI beforehand can help you measure the success of that software as it’s implemented within your company.
Weighing up the cost
There are a few key factors to consider when deciding if a software investment is worth the cost.
The first is to consider the size and scope of the projects that software is going to help with. If they’re large projects with lots of moving parts, then it would be good to automate them. This will speed up execution while reducing the chance of human error.
But if any one small task like getting a document signed is repeated enough, the cost of doing it inefficiently adds up quickly. This is the kind of task HRM software can help with. In either case it’s worth putting a value on that inefficiency and looking for an affordable solution.
Justifying the investment
Business purchases often have a lot of decision-makers. If you’re convinced that you’ve found the right accounting software, you have to be able to convince executives that this is a worthwhile investment.
A well-thought-out ROI calculation is a great way to address concerns around its expense, and show your stakeholders that this is a sound decision that will help the business grow.
Make a calculated decision for your business
Calculating your software ROI is essential for growth and success. Without it, you don’t know whether that shiny new piece of software is actually a sound investment.
Calculating software ROI enables you to make better decisions around software purchases and monitor how well they’re paying off in the long term.
