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ROI & Reporting Software: What You Need To Know
Will the reporting software your company is looking at offer a good return on investment? That’s the million-dollar question.
Return on investment is one of the most important principles of a successful business. Every organization tries to lower risk and maximize reward, so that they can continue to grow and expand with their organizational goals.
So shouldn’t that same line of thought be applied when your organization selects reporting software? Well, of course it should. But time and time again, I’ve watched companies fail to fully comprehend how reporting software can maximize their ROI dramatically.
In response, I’ve compiled this article that shows you how to:
- Define and calculate ROI,
- Understand the benefit of reporting software, and
- Calculate total implementation costs.
Let’s jump right in.
What is ROI and how do you calculate it?
As defined by Investopedia, return on investment (ROI) is:
“A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.”
So simply stated, a positive ROI is the benefit you get when you invest in a worthwhile venture.
To calculate ROI, the equation is: (Benefit of the investment - cost of the investment) / cost of the investment.
What is the benefit of implementing reporting software?
To answer this question, take a look at these three steps:
- First, you'll want to think about "time wasted and time saved" by understanding the answers to the following questions:
- Who is managing your reporting?
- How many people are involved?
- How much time is spent on this monthly or quarterly report?
- For a multi-billion dollar enterprise, it may be a team of five or more full-time employees.
- For a much smaller entity, you could have one or two people spending some 20% of their time on reporting each month.
- Next, you'll determine the total cost your organization spends on the management reporting process. You can do this by either adding the salaries of those who work on management reporting full-time, or dividing salaries by the percent of time that each employee spends on reporting and adding those figures together.
- Finally, you'll look at how much time you would save by implementing reporting software instead of using PowerPoint, Excel, or Google Sheets. In this article, we estimate that you’d save 50-75% of your time. I recently spoke to a strategy officer at a publicly traded marketing firm who said Excel reporting is three times more time consuming for their team than using reporting software. Thus, the time savings to his team were a collective 67%. That’s an incredibly important figure when it comes to maximizing your ROI.
Let’s say you have a team of three people who all work full-time on reporting. They average $140K each in salary and benefits, and you discover that they can save 50% of their time for five years by implementing reporting software. Following the logic listed above, you’d come up with the following equation:
$140K x 3 full-time employees x 50% savings x 5 years = $1,050K
It goes without saying what a huge return on investment that is.
How should you calculate the costs of reporting software implementation?
- Calculate the benefit of selecting reporting software over a period of five years. This is reasonable for software projects, although some excellent reporting software solutions are used by customers for six years and beyond.
- Calculate the total cost savings, which directly relates to the ROI of reporting software.
- If you are choosing software, get the vendor to list out the all in fees for 5 years (setup, configuration, training, annual license, etc)
- Take an educated guess as to how much time your team will spend in year one getting up to speed on the software. (Note: You'll want to check references of the vendor for this.) Do the same math to convert your time to money as in the example above.
Let’s say you get 15 licenses for a specific reporting software (and training) in year one. (For the sake of example, we’ll use ClearPoint software.) You also spend 40 hours of your own time in year one learning the software and teaching your team how to use it. So, following the logic above:
40 hours is 2% of your time for three people, or $8,400 + 5 years of reporting software at $12K/year, or $60,000 = $68,400.
Maybe you don’t purchase ClearPoint software, or you need more training, or you get premium support and other services—so your costs go up. In that case, let’s round the number up to $200K. So, your return on investment would be: ($1050 - $200) / $200 = 425%.
You can’t argue with the numbers.
Most organizations are looking for an ROI of somewhere over their cost of capital. This is typically about 20% or less. So, you’re probably wondering what this “425%” is all about, and whether we over-estimated the savings. For arguments sake, let’s assume that’s true.
Even if we cut the savings in half, you would still have an ROI of over 160%.
What does this tell us? Well, one thing's for sure: it tells us that an investment for a good reporting software tool is a very safe—and smart—investment.