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Calculating ROI of a software product PDF Print E-mail

One question we're routinely asked from our clients is "What's the ROI of this particular software package". Fortunately some software makers even have ROI tools on their website, but even if they do, it's fairly easy to work out.

Whilst this question does specifically relate to Microsoft's ISA server, it can certainly be used for some of the 3rd party add-ons.

Firstly, what actually does ROI mean? ROI simply means Return On Investment, which is to say in laymans terms, when will this thing pay for itself.

Iamgine for a moment we were looking at some software that claimed to reduce SPAM e-mail messages coming through your mail-server to your users. Let's do a hypothetical simulation based on this product.

  • How many users have access to e-mail? A (eg: 15)
  • What's the average hourly wage? (pick on the low end if you have to) B ($20)
  • How many spam message would a user get on average? (Again, choose a "low" end user if need be) C (eg: 5)

Make some assumptions:
It takes, say 30 seconds to receive/open/glance/close/delete each spam message.

Calculate it out (using my example above)
15 ppl x $20 hourly rate x (5 messages @ half a minute each /60minutes in the hour)
= 15 x $20 x ((5 x 0.5)/60)
= 15 x $20 x 0.4116 hours
= $12.50 per day

If the software costs, say $500
Your ROI = 500 / 12.5 = 40 working days.

The reason I suggest to take the lower end of the "Average" spectrum with wages or volume is its a "worse case scenario". Often this kind of ROI scenario needs to be prepared for an exectuive or business owner, sothe number need to appeal to them.

While we say for our ROI scenario that the average wage is $20/hour, it may be higher. By taking a low number they instantly knwo they'll get a "better" result if their costs are higher.

By saying that the average is 5 messages per day, we're probably highly under what they themselves receive each day so again they can see that the problem is "bigger" than your making it out andhence the ROI should in actual fact be better than indicated.

And lastly, what I'll usualy do is take the ROI figure in days as spat out at the end.... and then double it. The alst thing you want to do as a consultant (or an employee asking for approval for a capital expense to buy this software) is to make the number look SO good for you that if/when it doesn't perform as expected, your head will be on the chopping block. As a small business owner myself, I understand that other small business' also operate a "tight ship" and any funds are hard to come by. IF through explaining the ROI process to them, and then doing something really bizarre by doubling the payback time you're giving an even more conservative estiamte of when this product will actually pay for itself.

The same type of principle can be applied to things like "download security" applications that limit access to certain downlaodedable files etc by using things like the "fix" time required by IT staff when a user downlaods that latest spyware err, I mean screensaver which makes their machine crash all the time and IT has to wander down there and fix it.

I said at the very top of this article "Whilst this question does specifically relate to Microsoft's ISA server", in actual fact it can be used to justify using ISA server in your business.

Many organisations have an ADSL or some other type of Internet connection. Often this is "Shared" to the network using simple NAT routers or ICS boxes. Do the same sort of calculation as above with things like 15 staff, $20/hour and just 5 minutes per day spend on companies time browsing the internet to "non business sites". The numebrs can add up pretty darn quickly. Add to that of course things like download costs (if you pay per Mb) and the fact that 5 mnutes per day is a pretty convservative figure and the Site&Content filters within Microsoft ISA can quite quickly limit your access and exposure to wasted time by your employees.

Bear in mind of course that whilst using this method it maybe possible to quote an ROI figure in days that this product can pay for itself, remember that this isn't necessarily saving money. You've spent the $ bucks $ to buy the product but haven't necessarily seen a saving in expenditure. What you should see is a gain in productivity and it's up to the "business" to know how to best measure that and extract the value of those extra 5 minutes per person per day. Think about it, in a single 12 month period that 5 minutes per day over (around) 200 working days per year is 1000 minutes or a bit pver 2 full days. 2 days x $20/hour x 15 employee's is about $5000 worth of value that's just waiting to be tapped. Ask any business owner if they couldn't do with an extra $5000 each year!

The other side of course is that you can do things like allowing unrestricted access to certain sites (using destination sets and anonymous Site&Content rules) that can IMPROVE productivity or cut costs. Imagine every time one of your sales staff needs the number for a potential customer they call the directory assistance number. Using S&C rules in ISA to give "free" access to http://www.whitepages.com.au/ means you're not paying for a phone call + they can get the customers address. So, it may be a 30cent phone call saved.... but 5 sales staff doing that 5 times per day every day is another .30 x 5 x 4 = another $7.0 per day. Multiple that by the number of working days and, well, you get the picture.

We hope that this brief outline of the principles behind ROI (Return On Investment) and some sample calculations have been beneficial. Thinking about implimenting Microsoft ISA Server into your environment? If you in our service area, why don't you drop us an email, we'll send you a short questionaire and do an ROI calculation for you.

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