How to Calculate the ROI of Your Company’s Technology
Showing ROI for a digital technology investment can seem daunting, but it’s necessary to help sell your project. Learn how to calculate ROI and more.
When making a major decision like investing in digital technology, your company’s financial team will want to know the ROI or return on investment. It makes sense that they want to make sure the money they put into advancing their digital technology will either save the company money, make the company money, or both. In order to get their backing, you will need to calculate the ROI and sell the benefits of your digital transformation project. But how do you calculate ROI? And what else do you need to factor in?
What Is ROI and Why Is It Important?
Investopedia defines ROI as “a performance measure used to evaluate the efficiency or profitability of an investment.” Essentially, what the company will get back compared to the cost of the investment. ROI is calculated by dividing the return or benefit by the cost of the investment.
Not only will any financially sound company require you to calculate the ROI if you want them to invest money in something, but it’s also helpful to understand what you will get out of the investment. Some questions you might ask yourself are:
Why is this digital technology important?
What benefits will the technology provide my company?
Are these financial benefits?
Are there other non-financial benefits?
Will this technology bring in more revenue?
Will this technology save my company money by providing efficiencies?
What KPIs will I use to evaluate the benefits?
What is the total cost of the technology?
By answering these questions, you can better understand the full value of the technology and the total cost so you can calculate your ROI.
As you determine the cost, you will need to consider the design and development costs, any fees for using the software, and employee time investments. If there are recurring fees or regular maintenance costs, those should be included as well.
Determining the return can sometimes be a bit trickier if the benefits aren’t directly financial. If you know you are losing revenue because your competitors are using digital technologies that customers want, simply figure out the additional revenue you would gain to determine the value of the investment. If you know the new technology will save you money, take a look at what all costs will be reduced (labor, time, cost of goods, less human error, etc.) to determine the value of your investment.
What KPIs Should You Be Tracking?
As you calculate the value of your investment, it’s important to consider what KPIs (key performance indicators) you should be tracking. KPIs are metrics that are important in evaluating how effective a business objective is.
And when it comes to UX design, there are specific KPIs to monitor. Consider what will be gained by improving the user experience or what you will lose if you don’t implement the changes. Some KPIs to consider are:
Task success rate
Rate or number of problems using the system
Time spent on a single task
Number of features used by a user
NPS (Net Promoter Score) or SUS (System Usability Scale)
Specific functionality metrics (e.g. use of search feature vs. using the navigation)
Financial and Other Benefits of Digital Technology
So, what are the advantages of using technology in your business? As mentioned, there are both financial benefits and non-financial benefits to consider when deciding on investing in digital technology. The financial benefits are often easier to put a value on. Will you increase your revenue by using the new technology? If your system is customer-facing and you weren’t offering newer digital technology before, you could reach a whole new audience segment that’s looking for certain digital features. This could increase your revenue as new customers buy your product or service.
On the other hand, you may save money with the new technology, which is also a financial benefit. Will the new technology allow your employees to complete tasks faster, allowing them to be more efficient in their work? Or will the new system allow for less manual work or allow you to plan staffing better, reducing employee overhead? If you answered yes to either of these questions, you should consider the reduced expenses as part of a financial benefit.
But what are some non-financial benefits to digital transformation? As we stated, employees working faster can be a financial benefit, but there are also non-financial benefits when you can save time. Are employees dissatisfied doing menial tasks or are working long hours because of too much workload? Digital technology can help reduce manual tasks that take a lot of time and may be unenjoyable. Employees or clients will also be more satisfied when tasks take less time than before.
And let’s not forget that customer and employee happiness is also a benefit in and of itself. When technology used inside a company is easier to use and helps employees complete tasks quicker and easier, it allows for a better work experience. Ultimately leading to less turnover. For consumers, a great user experience can lead to more loyal customers.
Reduced errors is another benefit that leads to more loyal customers and can ultimately save time and money when support staff is needed less. New digital technology can allow your company to make better data-driven decisions. Whether it’s used to predict foot traffic in a retail environment that can help you staff appropriately, or the technology is used to better manage inventory, having access to data can help any company make improvements and be more efficient.
Meticular’s Data-Driven Approach
At Meticular, we take a data-driven approach to every UX design project. Before we even make design decisions, we analyze data to understand how users interact with the technology, what the current pain points are, and uncover any insights that will help us design an improved UI. If you don’t have this data in-house, we look at valid 3rd party research. We also do user testing along the way to ensure the design decisions we’re making will benefit the end-user. And after we’ve launched, we review data as users begin to use the new technology to understand their experiences and make adjustments. And we use the KPIs we talked about earlier to measure ROI for our clients.
Are you looking for a data-driven UX design firm that will help you show the ROI for your digital transformation project? Schedule a free consultation to discuss your project needs.