What Is Software ROI? How To Measure and Calculate It?Monday September 19, 2022
It’s critical to understand what ROI is and how to calculate it in order to make informed decisions regarding the software you select. While ROI is just one of many factors in software selection, it is often the most misunderstood and routinely overlooked or miscalculated.
We’ll address these concerns and provide some helpful ways to save time and increase your understanding of software ROI.
So, let’s dive in!
What is Software ROI?
Software ROI, or software return on investment, quantifies the potential of a software application to increase revenue, decrease cost, improve customer satisfaction and achieve operational efficiences.
When considering software ROI, it’s important to remember that future costs and revenues are often difficult to predict accurately but estimating ROI still provides objectives and outcomes that reflect what the company intends to achieve.
How to measure Software ROI?
The primary components for ROI analysis includes the cost of the software, including the anticipated cost of operating and maintaining the software, expected revenue and cost reduction impact from utilizing the software, and less measurable but important intangibles involved when calculating software ROI.
Cost of the software investment
The first step in assessing a potential software investment is to determine the operating expenses for your business to get the targeted benefits. So, how much do you spend to maintain the status quo? How else is the current circumstance impeding your team’s progress?
Teams are frequently taken aback by the expense of their current methods when everything is said and done. Due to salaries, software licensing that you may or may not fully utilize, outside vendors, layoffs, training, etc., your current expenditures may surpass your objectives.
If this is the case, your company may be wasting a ton of money maintaining a system that is outdated, underpowered, and unable to handle the expanding demands of the industry, which in turn limits its capacity to advance and innovate.
The intangible expenses of work frustration drive up the cost of outdated systems. Old and inadequate processes make work for employees tedious and unfulfilling, increasing absenteeism and resulting in a disengaged workforce.
In other words, maintaining the status quo might result in both hard costs (quantitative costs) and soft costs (qualitative/soft costs).
To establish a baseline for the project, figure out your current costs assuming no modifications are made to your current processes. Then you would divide this sum by five years to get the amount you might reasonably spend utilizing your current techniques.
Expected net new revenue from using the software
For obvious reasons, “net new revenue” is a significant concern for enterprise entities. They hope to increase revenues through scalable solutions and become more competitive in their sector.
Net new revenue considerations:
- Competitiveness: What value would you receive from gaining a competitive edge in your market?
- Increased revenue per employee: If you operate more effectively, how much additional net revenue could you produce with the same number of employees?
- Gaining additional customers: Can you gain new customers you couldn’t previously serve thanks to this technology? By diverting employee time and responsibilities from cost center activities to revenue-generating ones, or by the software itself?
- Customer references and referrals: Will this gain stronger customer loyalty and excitement so that customers rave about their experiences to other prospective customers or even refer you to prospective customers?
- Retention and increased customer lifetime value: How much can this increase customer lifetime value?
Other benefits from using the software
In addition to net new revenue, the value of implementing the right software can bring many intangible benefits which can lead to hard cost savings and soft cost savings, which can improve business outcomes in terms of customer satisfaction, workforce satisfaction, marketplace image and reputation and so on.
Operational effectiveness and cost reduction considerations:
- Increased throughput: How much cost reduction is achieved due to increased operational efficiencies in the throughput of the supply chain, manufacture of the product or delivery of the service?
- Reduce reoccurring issues: What is the impact of improved quality of outputs – product/service, customer support, supply chain efficiencies, marketing?
- A better understanding of consumer needs: How much would it be worth to access more and better customer data?
- Team workflow checks & balances: What if you could guarantee that your company is operating efficiently and granting people the appropriate degrees of authorization based on their roles?
- Standardize project workflow: What would it be worth if you could standardize your projects, team process, and deliverables to clients?
- Reduce the amount of engineering/consulting hours spent on each project: What would it be worth to take on additional projects with your current team?
- Delivering projects on time and within budget: How could you do this while streamlining your planning and operations and meeting or exceeding client expectations?
- Rapid adaptation: What would it be worth to quickly adjust and deal with project changes in hours or days instead of weeks or months (even years)?
- Real-time analytics: What if you could learn what is functioning well and where adjustments are needed inside your workflows or projects, all in real-time? Real-time analytics can help projects run more smoothly.
- Opportunistic access & coordinated analysis: What would it be worth to understand data about your customers and products that enabled you to develop more intelligent product development?
- Brand value and prestige: How valuable is it to improve your customers’ opinion of your brand?
- Reduce reoccurring issues: What if the general quality of your teams improved?
- Peace of mind: What would it be worth if all of your leaders slept better at night?
- Strategy confidence: What if you obtained the confidence you needed to move forward?
- Industry recognition: What would it be worth to impress the industry and your stakeholders with awards and industry recognition?
After identifying and estimating the above costs and benefits on an annual basis, as best you can, the next step is to calculate ROI.
How do you calculate the possible ROI of your software?
In order to calculate the potential ROI of your software, use the following formula to calculate your ROI multiple.
For example, if Net New Revenue plus the value of improvements, cost reductions and intangibles is $50 million (over 4 years) and the combined costs are $10M (over 5 years), the ROI multiple is 5. In other words, the decision to implement the new software is projected to yield 5 times the cost involved.
The reason to use 4 years for the benefits is that the first year won’t see full returns as the software is implemented, internal teams are brought on board, and customers are updated and new customers gained.
What about user adoption of the software?
Failing to consider the human factor when implementing software creates significant risk that you will not achieve the projected benefits while certainly incurring the costs. The result will be a ROI shortfall, likely a dramatic shortfall. For the business itself, this means operational disruption, possible customer disruption and potentially increased costs due to lower productivity and increased incidence of errors, omissions and rework. Adopting new or updated software has a direct correlation to your teams’ performance. Ineffective change management, training and adoption methodologies result in low technology adoption rates among the user base.
Create an onboarding plan to support your software implementation process that onboards and trains your staff on all new applications before executing a change.
Employees will, at best, effectively adapt to the cutting-edge feature sets that drive output, and at worst, team members will fail to see the value in a tool and fall back on more convenient old habits.
Getting software training serves the sole purpose of accelerating and simplifying procedures. A steep learning curve could ultimately work against you. You will soon realize just marginal returns from your most recent investment.
Save time with Epilogue Opus and bring training into the application
Our simple goal at the heart of Opus is to make enterprise software easy to use. We know that when software is easy to use, people are more likely to actually use it. And when people use enterprise software, businesses run more smoothly and efficiently.
When users adopt and use the software as intended, all the time, a major block to ROI achievement is removed.
What does Opus offer to you?
Zero learning curve
We’ve designed our Digital Adoption Platform, Opus, to require no learning curve by those:
- Creating content: With Opus, documenting a software process or task can be done in minutes, with no learning curve. You don’t need to know Opus, you just need to know the software processes you are documenting.
- Editing and Publishing: With Opus, editing is a simple drag-and-drop functionality that gives you many options on how to enhance the recording easily and quickly. And publishing is as simple as pushing a button.
- Accessing help and guidance: Users of the new or updated software need help at their moment of need, without leaving the software they are working in. And that help must be in the format that works for their learning style. Right help, right time, right way.
- Best of all, Opus provides insights that help businesses understand user adoption and effectiveness.
With Opus, enterprises can finally get the most out of their software investment with a Digital Adoption Platform built for the size and scale of their operations and the software they use.
Create learning content in minutes
Opus is a powerful tool for creating learning content quickly and easily.
Record your business processes
With Opus, content creators are the subject matter experts in your organization – in accounting, human resources, purchasing, warehousing and distribution, manufacturing, service and support, etc. Anyone who knows the software to be used can document processes and tasks in minutes, with no learning curve. Simply click record on the Opus Recorder browser extension and then perform the application task as you normally would, Opus sits in the background and captures what it needs to generate a variety of outputs used during the implementation (user acceptance test scripts, step-by-step compliance documentation, assets that can be used in eLearning, LMS or LXP’s). Opus is a single source/multiple output tool – create once, generate all and edit once, update all.
Edit the steps
Opus has a workflow engine that drives recorded processes to a group of Opus editors who review and enhance the recording with additional “intelligence”, such as notes/comments, incorporation of other content deemed useful or necessary (pdfs, powerpoint, videos, links to other content, etc). The Opus editor is a simple drag and drop functionality that is intuitive and easy to learn while offering powerful features to enhance your content and make it fully helpful. All in a standardized and professional presentation so that your users see the same format every time, regardless of what application you are using Opus on.
Once editing is done and reviewed, the workflow engine pushes the content to the person(s) responsible for pushing the publish button. The timing of publishing can be done as desired, one by one, or scheduled for release in bulk so that all content for a particular application implementation or update can be done at the same time. Once published, it’s then available to the users of the new or updated software.
Access with In-application Opus Advisor
The Opus Advisor is a browser extension (chrome, edge) that enables in-application access to the help and guidance content. Advisor knows who you are, what software you are working in, where in that application you are and other things like your department, role and language. Based on all this, Advisor brings up the most relevant content for what you are trying to do. Plus, from within the Advisor, you can always just search for the content. No leaving the application to find help, call support, or bother a colleague. And the user can select from multiple output types to fit their learning style or proficiency level: job aid, simulation, book or walk through, all of which were created automatically during the record process.
The purpose of Opus is to allow organizations to ensure that users can quickly and effectively achieve proficiency with their software.
To measure and calculate software ROI, companies must identify what they hope to achieve with the product and how they plan on achieving it. Then they must estimate, as best they can, the benefits and costs they intend to realize.
Once this has been established, various factors can be looked at to determine the software’s overall value. One aspect of deploying or updating software is the people side of the equation, specifically, gaining adoption and proficient use of the software. This is typically not well done and undermines the intended outcomes and ROI. Realizing this and properly attending to the enablement of users is critical. The details involved in preparing a ROI calculation are extensive and while this post has covered the topic at a high level, we hope you’ve found it helpful and are ready for the hard work of doing it properly.
Good luck and if you need help with adoption and proficient use, we’re here for you.