When considering investing in a software solution, one of the most important factors that organizations tend to consider is the level of profitability that the tool can offer. This process can often represent a challenge for organizations; as it is difficult to measure the Return on Investment of a tool without strictly taking into account the financial elements. Luckily, when applying some strategies; it is possible to get an idea of the ROI that a software solution can provide.
Read on and find out how you can measure the Return on Investment of your IT tool.
ROI: What exactly is it?
The acronym ROI stands for “return on investment”. It is the financial coefficient that measures the amount of money lost or recovered as a result of an investment.
Generally expressed as a percentage; Return on Investment enables the comparison of investments based on the amount of money invested and the amount of money earned or lost. Calculating return on investment is a statistical tool that makes it easier for investors to choose the direction they want to take with their investments. The ROI calculation corresponds to the following ratio: ROI (%) = (return on investment – investment cost) / investment cost. If the notion of temporariness does not play a role in its measurement; it is calculated over a defined period, which is generally one year. That’s why we call it an annual return.
What is the purpose of ROI?
ROI is a valuable indicator to support decision-making. Indeed, its results allow the investor to select the project that promises to be the most profitable in relation to the sums initially invested.
How to measure the Return on Investment of a software solution?
In today’s market, there are many varieties of software: more or less complex, in client/server mode or in the cloud, open source or proprietary. Regardless of the initial cost of your investment; it is important that you consider all peripheral expenses.
For example, if you decide to purchase a tool hosted on the server you will have to take into account the costs associated with hosting the servers. As well as those associated with the configuration, maintenance and updates of the tool. Not to mention the internal efforts required to maintain, secure, back up and monitor the software.
Conversely, if you choose a cloud solution, you will be exempt from all infrastructure and hardware costs. That is, you will only be responsible for monthly or annual subscription fees.
In the case of open source software you will have no installation or subscription fees; but you will require resources with solid technical knowledge for its integration and building.
Finally, take the time to do your calculation and do not go directly to the cheapest. In any case, it is estimated that it takes at least a year for the investment in software to be worthwhile. Some factors to consider when measuring the Return on Investment are the following:
#1 Objectives
Although the consequences and costs of investing in a software tool are not insignificant; it is necessary to take into account all its benefits. Indeed, it is essential to be able to overcome the first fears linked to the financial and human investments that this represents.
The first question you should ask yourself when investing in software is: what do you want to improve with this investment? If you do not know; reconsider the idea and stay momentarily in your original system. To find out what type of software you should choose; ask yourself what features you want and concentrate on the most important ones. Wanting to change everything at the same time is a big risk for your company. But to save time in the future and make your investment even more profitable; try to anticipate what you will need in the medium/long term and choose the tool that can meet the objectives of the organization.
#2 Accurate indicators
Calculation of a project’s ROI provides a macroscopic view of the profitability of the application of a tool in that specific project. Reduced overtime, better compliance with service agreements and reduced use of temporary workers are objective indicators that work teams can monitor.
#3 Configuration
In order to make use of a solution, do you have to invest in new technology? Do you have to reconfigure your corporate infrastructure? How much time do you need to spend to install your solution? These are essential questions to ask yourself when evaluating the Return on Investment of any tool. If in spite of integrating cutting-edge technology and great functionalities, your tool requires the extra integration of some hardware elements within your organization, then it is possible that the cost/profit ratio is not so favorable.
#4 Human investment
The implementation of a tool implies a real change management, proportionally speaking. The objective is not to change the work habits of your employees; but to offer them a solution to work better, without increasing their efforts. Therefore, it is important to evaluate all that this change will bring with it. And this necessarily involves a training phase of the people involved; a cost that must necessarily be weighed against the balance.
How much time and resources should you invest in training your employees to use the new solution? This is an important indicator because it will allow you to measure the amount of time it can take for your company members to start being productive with the new tool.
In addition to focusing on the issue of money, focus on issues of efficiency and performance. For example, by increasing the productivity of your employees by at least 5%; you can get a good ROI and a reasonable return. If your tool can offer you that, it certainly pays off.
If you are looking for software solutions that exceed your expectations; at GB Advisors we have the best for you. Contact us and receive complete information about the most convenient tools for your business.
