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Software Tool Evaluation Factor 5: ROI

ROI

Return of investment for a software tool is a performance measure which is used to evaluate an investment. It is a popular measure, because it is very simple.

When you consider investing in software, you want to know the level of profitability that the tool can offer.
So you need to know first, what amount you need to invest.

Costs of a software solution

  • What are the license costs?
  • Are these monthly costs or one time investment?
  • Is support & service included in the price or is there an additional cost (18-22% per year)
  • Do you need any additional software like a Database?
  • Does the software run on your current infrastructure or do you need any upgrades / new hardware?
  • How complex is the data migration when you already have a tool?
  • Do you need any additional people to run and maintain, secure, backup and monitor the software solution?
  • Do you need to train users and administrators on the new solution?

Once you know the costs you need to calculate what you get for your money.

Savings when using the software solution

  • What do you want to improve with the new solution?
  • How much time do you save, when using the software solution?
  • How much does the solution improve the performance and efficiency of your employees?
  • Are there productivity improvements using the new software solution?
  • Can the vendor demonstrate the value you get by using this solution?

There are many calculators on the market to calculate a ROI for a new software tool. This can help you to understand whether the new tool will get you a ROI or not. Common to all calculators is that you input some basic assumptions and data about costs and savings for the future.

Some ideas what a calculator should have as an input

  • Cost of software
  • Training costs
  • Costs of data migration
  • Maintenance costs
  • Labor costs for all above tasks per month or year and as one time costs
  • Savings for users, administrators and managers in percent per year
  • Increase in new and returning customers when the solution is in place

As a result you should get your ROI per year, where you can see how long it takes to a break even. Then you need to decide, whether it is worth to implement the new solution in your company.