As you can imagine, we think about return-on-investment (ROI) all the time when talking about or selling our collaboration software. Most of us inherently know lots of goodness comes from collaborating more effectively with our colleagues, partners or customers, but the really important thing to focus on for ROI is not collaboration by itself. Collaborating more effectively yields other goodies that generate ROI like time saved, expenses reduced, increased sales, etc.. To really calculate ROI, you need metrics, a baseline, and measured improvement. This sounds obvious but people don’t often take it one step further. I’m finding they rarely have a business case or even have access to metrics to prove it out.
I’ll give you a very simplistic example I used with a customer the other day who was asking about ROI for a consulting organization:
- Average employee cost is $50/hour (if this is a large consulting organization, this is probably too low but let’s go with it to be conservative)
- GroupSwim through faster answering of questions, creating content through wiki pages, sharing files, on-boarding new employees, and searching information quickly can save the average employee two hours per month
- 2 hours * $50/hour * 1,000 employees * 12 months = $120,000
- ROI for this investment = 108%
My guess is these assumptions are very low and the ROI is probably higher. The high growth, decentralized, new employee characteristics lead me to believe we can probably save more time for people than 2 hours per month, especially when they are new and learning how to consult.
We are going to talk more about ROI in future posts. In fact, we are going to discuss how there is a whole range of ways to think about and measure ROI. Certain things like reduced call volume to a support organization are easy to quantify. Other benefits like increased sales are not as easy to pin down, but we have some ideas. What do you think?
Tags: collaboration, GroupSwim, Return-on-investment, ROI, Software
April 13, 2009 at 2:37 pm |
Hi Jason,
I think you’re on the right track to determining the ROI. The best approach to determining the ROI will combine all components relating to increased revenue potential and cost savings. To me, these would include:
* Professional time saved in collaboration (as you showed above) across all impacted employees (be sure to consider the costs, if applicable, of wasting time on the wrong document versions).
* Reduced IT costs (for hw & sw infrastructure, salaries, & other professional costs).
* Reduced Support costs (call and email volumes).
* New sales from building a collaborative culture.
* After-market sales from building a collaborative culture..
Specific to a solution like GroupSwim, also consider savings for
* Reduced travel.
* Sales improvements (for example, ensuring sales folks distributed up-to-date materials, have current price lists for quotes, etc).
Depending on the company, there may be other applicable ROI components to consider.
Additionally, I like to consider an ROI in terms of Minimum, Most Likely, and Maximum outcomes. This is particularly useful when considering some of the harder to quantify components like increased sales. For example, set the parameters for the Min case to have a 90% probability of occurring, Most Likely to have a 50% probability, and Max to have a 10% probability. If you take that approach, then you can see a range of possibilities and better access the general opportunity and risk of the software solution.
April 13, 2009 at 3:56 pm |
Hey Kathy,
Great comments. I definitely like the approach of applying a probability and factoring that against the ROI calculation. Appreciate the comment very much.
Jason