Worldwide, companies succumbed to inevitable digital transformation and investment into enterprise software as a direct result of Covid-19. A catalyst for growth, the average company went from, on average, 137 unique SaaS applications in 2019 (Source: Zendesk) to 288 SaaS portfolio apps in 2021 (Source: Blissfully).
Post COVID-19, business ecosystems are experiencing a complete overhaul in the way they work – both physically and digitally. So why not transform the criteria used to measure ROI in 2023?
At Lemon Learning, we believe modern solutions open doors for modern methods to calculate software ROI. Let’s discuss.
What is software ROI?
Software ROI is simply the return on investment of business applications, software, and technology. It measures user performance, software projects, workflows, automated manual processes, reporting, data analytics, and countless more variables.
A single client found that misused and unused purchasing software resulted in a calculated loss of 15 million €/year. It was attributed to a lack of training and difficulty to use software – common issues that lead to negative software ROI.Lemon Learning client survey
How can you measure software ROI?
ROI is a performance measurement used to evaluate the efficiency of an investment (Investopedia). In layman’s terms, the basic formula to calculate ROI is: (cost of investment) – (current value of investment) / (cost of investment)
But there are two main problems: calculating ROI is laborious, complex, and never entirely accurate, and the current value of an investment is not always known. With numerous ways to measure and interpret the impact of business software investments, we believe modern solutions require a modern approach to highlight ROI.
Whatever your position or department, you want a variety and a range of variables to prove the estimated impact of your investments.*
Modern methods to improve your calculation of software ROI
Let’s take a look at HR, L&D, Procurement, and IT departments. Each department uses a different software stack, producing different metrics to measure ROI.
The key is to determine what software success means to you. How can you establish the role your software applications play in meeting department KPIs, OKRs, and user needs and how do they help toward achieving company goals?
ROI by department
1. HR professionals
So you want to prove the worth of your cloud HRIS with relevant measurables to extend the subscription. Ask yourself the right questions.
Have your initial business HRIS KPIs been met?:
- centralized and accessible data
- employee data reporting accuracy
- speed of payroll
- reduced employee data entry errors
- recruiting conversion rate
- quality and tracking of new hires and onboarding
- higher Net Promoter Score
- lower employee turnover rate
- better measurement of employee diversity
Have your personal HRIS KPIs been met?:
- time saved through automating processes
- ability to focus on more complex problems
- employee autonomy in the HRIS
2. Learning and development department
Training and onboarding are the first steps to ensuring positive ROI. A lack of processes or lack of quality processes will result in negative ROI thanks to:
- incorrect use of tools
- incorrect data
- error mitigation
- lack of digital adoption
- underutilized updates/features
- software abandonment
Quantitative ROI is not always immediate, but can be measured through:
- training engagement: actual consumption of training content, frequency of consultation of content, etc.
- digital adoption
- training performance: time to completion, attempts to completion, time per module, training score, pass rate etc.
- support requests: software/features generating the most requests (can further training/onboarding rescue support requests and costs, is it easy to use, is it worth continuing the investment, does it need replacing?)
L&D departments understand that qualitative variables can provide just as much insight into software ROI and should be used to present value to the C-suite, including:
- management feedback on team engagement
- user onboarding and training questionnaires/ surveys
Did you know? ROI ranked last (24.2%) among L&D leaders when asked which metrics they use to determine the impact of leadership development programs.(Source: Chief Learning Officer Magazine, State of Learning report 2020)
How can you measure the value and impact of global procurement and purchasing tools?
In quantitative measures have you experienced?:
- reduction in costs of goods and services
- data reliability/ reduction in data errors
- better spending and savings visibility
- time saved due to manual purchasing automation
- increased productivity
- reduced support and training costs
And qualitatively speaking, have users benefited from?:
- centralized procurement and data tools
- automation of repetitive and time-consuming tasks
- clearer overview for improved monitoring
- facilitated management of calls for tender
The IT department maintains and governs the entire technology infrastructure of an organization. This includes the selection of software and hardware, but also fulfilling the specific requests of their users.
How can the general performance of an organization be used to measure ROI?:
Conduct a quarterly application/software audit:
- number of software company-wide
- subscription/license cost
- subscription duration
- operational utility
- number of user licenses being fulfilled
While a software audit might seem obvious, shadow IT is growing exponentially, especially in high growth businesses. In fact, experts estimate that 40% of all IT spending at a company takes place outside the IT department. Risks include:
- loss of control and visibility
- forgotten software
- security gaps
- lack of spending control
🍋 Tip: Reduce the risks of shadow IT negatively impacting your company software ROI during your software audit, by obtaining login details and recording application owners.
General user performance can also be linked to the way users obtain support for their applications. Consider the following metrics to determine the success of your tools and how they could be improved:
- recurrence of support requests
- number of support requests
- processing time of support requests
- resolution of support requests
Approximately $34 billion in yearly licensing waste is generated each year between the US and UK.(Source: G2)
Create a case for digital transformation based on ROI
There’s no one concrete way to analyze the ROI of your business software applications. As a product owner, manager, or software project leader, you should be searching for new and innovative methods to determine the success of your tools. Use ROI to not only ensure the future subscription and licensing of your tools, but also assist your argument for future digital transformation. Long term, negative ROI is a major indicator of the need for change.
🍋 Lemon Learning tip: If you need help determining the user performance of your software investments, consider a digital adoption platform.