Print Management Blog
Thu, 13 Nov 2008
It can be very difficult to calculate Return on investment made when the investment is as intangible as a better process or a better software system. I spent ages creating a detailed ROI calculator and gave up !
Here's a simple sum to help quantify whether spending money is worth it. Anyone got a simpler way of calculating this?
Think in really general terms. What % improvement do you feel confident using the new system would save you against your current costs? Or add to your annual turnover? This could be from less steps in the order process, standardisation of documents, ease of access of staff induction documents etc, generally streamlining your processes. Or on sales, from selling more to existing customers or finding new ones.
Now pick a really safe percentage, say 2% - 5%. Lets call it 2% to make my maths easy.
Take your annual turnover
Take the projected cost of the new system.
Take 2% of annual turnover divide by 12 to get a projected monthly increase in revenue. Divide one by the other.
This is what the payback period would be if using it as part of your day to day activity put just 2% on your turnover. Certainly less than 6 months? Then take that 2% a year and work out what its costing you over the last six months not to have done it. What other investment in your business has that sort of payback period?
Here's an example
£2 million turnover @2% = £40,000 in first year / 12 = £3,333 pr month
Software cost say £10,000
Actual Payback on investment 3 months, after that you are ahead.
Or if you prefer, every 3 months if you don't do something costs you £10,000 (on the above sums)
Anyone got a simpler way of calculating this?
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