You’re probably wondering: how does paying someone else money increase the dollar signs on my paycheck? Sure, it seems counterintuitive. But getting the most out of your organization’s assets comes down to your financial mindset. Software is the steam engine of the 21st century—the tool that’ll keep your profits well beyond budget, regardless of the payout.
You’re likely on the next question: what’s the catch? How much do I have to pay? We have to explore ROI, or Return On Investment, first.
ROI is used to assess all sorts of projects and decisions in business.
Doing an ROI analysis can help you:
When deciding which help desk software to purchase, the basic questions you must ask yourself are:
ROI is a financial term with a precise definition:
We’ve heard the adage “you get what you give”. But ROI is about getting back more. Again, is the ROI on a help desk software investment worth it? (The answer is yes, by the way. We’re going to tell you why.)
Over the life of a project, there will be monetary benefits (or a return). Some of the return on investment in help desk software might happen right away; more might come in later. You add up all those dollars of benefits that the project returns. To be precise:
Then you compare the total dollars the project returns in benefits to the total dollars you spend on the project. The precise equation is:
Here’s a simple example of calculating ROI:
You spend $1,000 on help desk software to save $800 per year in reduced administrative costs. There are no other costs than the upfront licensing of the software, and no other benefits than the reduced admin costs.
Over three years, the benefit is $2,400 and the cost is $1,000.
Since the cost is assumed to be upfront, the NPV of the cost is $1,000. No need to discount it. The benefits are assumed to occur at the end of each year, and equate to an NPV of $1,989 with a discount rate of 10%.
Why is the NPV $1,989? That's the result of a financial formula that takes into account
The easy way to get at this number would be to use the Excel NPV function. If you'd like more information on how net present value is calculated, here is an Investopedia article explaining it:
SEE: How is net present value calculated?
Here’s the result for this example:
ROI = ($1,989 - $1,000)/$1,000 * 100 = 98.9%
Outside the finance department, the term ROI is less precise. The time frame is usually not stated but assumed to be “the life of the project” or “the next few years.” And ROI is often shorthand for “Return” measured in dollars. It is not uncommon for a sales rep to tell you about customers achieving “thousands of dollars in ROI.”
Many companies have ROI benchmarks to apply to new projects under consideration—15% is a common target. In such a company, if your project looks like it will produce an annual ROI of only 10%, you’ll have some explaining to do.
Although the calculation is precise, the numbers going into it are often squishy. There are soft benefits (e.g., better employee morale) mixed with hard ones (100 person-hours per year of administrative work eliminated per year—for a savings of $3,000).
On top of hard and soft benefits, there is a risk of:
You want to be able to make a statement like this:
Implementing help desk software at ACME Knowledge Workers, Inc. will result in direct savings of $5,000 per year for an ROI of 50% on the $10,000 investment over three years. A backup schedule with detailed assumptions is attached. The risk of not completing the project is minimal based on previous dealings with this vendor.
In addition, soft benefits include happier workers, improved customer satisfaction, and better staffing decisions in the IT Support department.
Let’s take a look at how to get there!
We’re going to review the ROI on help desk software as an example.
Let’s explore the hard and soft benefits of using ticketing software for your help desk. Here are some of the benefits leading help desk software vendors have found.
According to a Forrester study for ManageEngine, adopting help desk software can produce hard benefits:
Soft benefits of adopting help desk software include:
Software vendor ServiceNow touts a 397% ROI and a payback period of less than 6 months based on a TEI(™) Study they commissioned. TEI(™) stands for Total Economic Impact, and is a term coined by Forrester Research, who also pioneered the methodology (or at least they branded it!). As you might imagine, it involves casting a wide net to figure out the costs and benefits of a project over its lifetime. You can get details by leaving your contact info on the ServiceNow website.
There are multiple benefits as well. As users become accustomed to a well implemented system, they find other opportunities to improve business processes. You can often configure help desk software to handle HR requests, complaints, external customer service requests, and other similar functions. Reduced training costs and quick adoption accelerate the ROI.
Learn more about our software for help desk.
The investment (the “I” in ROI) is the aggregation of all the costs involved when putting in place a software solution.
In our help desk software example, here are the types of costs to analyze. These categories are relevant for most software categories:
Download our simple example of help desk software for a hypothetical 10-agent IT Department:
The calculator takes the direct software costs, plus additional staff time consumed to implement and run the system, and compares it to the effect of a combination of factors expressed as a gain in efficiency for the agent workforce.
It also has the option to calculate the effect of reduced downtime for the organization as a whole, if that is one of the anticipated benefits. In other words, systems stay up and running with fewer outages if you do a good job of issue resolution and root cause analysis (assuming you have a decent issue tracking system, of course!).
For the 10-agent help desk software example:
A 10-agent implementation costs $27,000 in software and staff time while producing $119,000 in benefits from the 8% increase in efficiency in the agent workforce. This equates to an ROI of 340%.
ROI can be a useful tool to evaluate a software project and communicate its benefits to decision-makers and stakeholders.
It is best used with a heavy dose of common sense. We have tried to explain the concepts behind ROI to help you decide how it might be used in your organization.
The bigger the project and its impact on the organization, the more sense it makes to do the detailed analysis and quantify the expected costs and benefits.
Often, the Ben Franklin approach is sufficient:
He suggested making a T-chart with the pros on the left and the cons on the right. Hopefully everything we’ve written here helps you think about the pros and cons that apply to your situation.
If you have to have a precise number to tout as the ROI, due to company policy or whatever, feel free to use the ROI calculator described earlier.
We mentioned before Forrester Research trademarked the term TEI or Total Economic Impact. You can order a Total Economic Impact study from them. Big software vendors do it retrospectively, so they have numbers to tout in their sales presentations. Customers can commission one prospectively, to help with a major software project decision.
They are selling financial common sense. You can learn a little more about TEI at the Forrester website. You can learn a lot more if you become an Issuetrak client.
CIO magazine published an article a few years ago that analyzed Total Cost of Ownership for three categories of software:
They identified costs that you might not consider - such as migration and retirement costs. If you switch to a different solution in the future, you may have to keep archived data (and the ability to read it) for a certain amount of time for compliance reasons.
They also help identify costs for the on-premises solution, such as security updates and software patches, which are not incurred with cloud software.
This CIO article explains why you should always estimate ROI before buying enterprise software. It does a good job of brainstorming types costs and benefits to consider when bringing in enterprise software. The article is slanted toward larger projects and advocates considering multiplier benefits as hard benefits, before then applying a factor to adjust for risk.
But should you always go to the trouble? Risk is a tough cookie to quantify. Software projects are like other things in life: the bigger they are, the harder they fall. We advise common sense—and to measure your ROI wisely.
See the Return our customers have already experienced using Issuetrak at their help desk.