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Does Your Software Give You A Positive ROI? Here’s How To Tell

If you want to make smarter investments, you should consider the return on investment (ROI) brought to you by each new purchase or subscription.

Most businesses purchase software somewhat indiscriminately, buying new platforms whenever a new need presents itself. But if you want to make smarter investments, you should consider the return on investment (ROI) brought to you by each new purchase or subscription.

Software ROI in a Nutshell

ROI attempts to objectively measure how much value an asset is bringing you. In a marketing context, you might try to calculate how many leads a strategy generates compared to how much money it cost to launch that lead generation strategy. In investing, you might attempt to calculate how much money is generated by a rental property, compared to how much money it takes to maintain that property.

In the context of software, you’ll need to understand how much value a software platform brings your organization, compared to how much you’re spending on it.

So how do we calculate software ROI? Put simply, we just need to figure out the true costs of the software and the value of the benefits we get from it.

Calculate the Costs

To start, we’ll focus on calculating the costs associated with this software platform:

· Paid subscriptions. You probably have some obvious costs associated with this platform. How much are you paying for it on a monthly or annual basis? Are you paying for any upgrades or extra features?

· Secondary costs. Are there any secondary costs associated with this platform? For example, do you need to invest in internal hardware or pay subscription fees for secondary software platforms to make sure your primary platform works as intended?

· Labor costs. How much time and effort does it take to maintain this platform? Are there any labor costs associated with keeping this platform around?

Estimate the Benefits

Next, we need to estimate the benefits.

· Time savings and productivity. Your time is valuable – and probably more valuable than you realize. Every minute a software platform saves you is a minute you should enter into your equation. If this platform saves all your employees an hour each week, and you have 100 employees using it, you’re practically saving 100 hours of labor costs every week. make sure you factor this in.

· Cost savings and practical improvements. Does this platform help you save money, like allowing you to compare prices or helping you allocate resources more efficiently? This can be difficult to quantify, so just do your best.

· Reach, visibility, and sales. Marketing, advertising, and sales platforms are usually focused on increasing your reach, visibility, and sales. How much extra revenue are you generating now that you’re using this platform on a regular basis?

· Travel/overhead reduction. Meeting virtually allows you to skip several costs, including costs of travel, commuting, and office supplies – maybe even the office lease entirely.

· Customer satisfaction and retention. Your business depends on customers to generate revenue. If your platform keeps customers happy (and retains them), it provides measurable value.

· Analytics and decision making. Does this platform help you make better, data-driven decisions? These are tough to quantify, but are important to consider as well.

Taking Action

Ideally, you’ll have a positive ROI. The higher the ROI is, the better, but any software platform that provides more value than it takes is worth keeping; even a small, positive ROI is plenty of justification to continue using this platform (though you can probably benefit by making upgrades).

If you have a negative ROI or a neutral ROI, you’ll need to take action. These are some of your best options:

· Eliminate the platform. If the platform doesn’t serve a functional purpose, or if it isn’t strictly necessary to your organization, you can consider eliminating the platform. It doesn’t require a replacement if it didn’t serve much of a function to begin with.

· Switch platforms. Another option is to switch to a different platform that serves a similar purpose. Shop around for a competitor that offers something analogous, evaluate it, and try to ballpark whether it can net you higher ROI. Look for platforms that close the gaps in your current platform, offering greater functionality or more benefits. The migration to the new platform might be stressful and expensive, but it’s usually worth the investment.

· Renegotiate. One final option is to consider renegotiating with your software provider. If you express that this platform isn’t giving you a positive ROI, they may be willing to upgrade you to the next tier for free or give you a lower price to maintain you as a subscriber.

Software ROI is something of a complicated issue, since software provides value in many different ways. It’s not important to have precise measurements; what’s important is that you use logic and objective reasoning to figure out whether each software platform in your suite of tools is worth keeping. Do that, and you’ll instantly increase the value and efficiency of your organization.

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