When evaluating technology solutions that may benefit your organization, executives and administrators will undoubtedly ask you at least three questions: 1) What are we getting for our money? 2) What is the ROI? 3) What is the adoption rate for each system?
At one time or another, you have probably heard at least one of these questions. Successful businesses do a cost – benefit analysis on all significant uses of money, and the greater a particular use of funds, the stricter a cost – benefit assessment should be. Costs and benefits in most cases are hard to determine but don’t let perfection be the enemy of valuable information.
What are the main cost drivers and benefit drivers? For a specific use of money, ROI is how much profit or cost savings are realized.
Two Metrics for Determining Salesforce ROI
• For Salesforce products related to sales, profit is the key metric to consider. Profit is the difference between increased revenue from sales and all related costs
Calculating profit: take the gross profit percentage and multiply it by increased revenue, then subtract variable sales costs such as travelling and commissions
• Beyond sales, cost savings is the key metric to consider. Cost savings is the difference between the costs associated with the new system and related cost reductions
Calculating ROI Based on Profit Gains
You can determine profit by calculating the increase in sales over a period of time, less the total costs of the products and services sold for that same time. The time period needs to be long enough to show impact. ROI can be calculated over different periods of time and monitored accordingly.
This calculation often needs to be refined because the ROI profit and increase in sales may be caused by a number of other factors besides Salesforce, such as: new marketing efforts and investments, new sales people, new products, new pricing and new relationships.
One possible approach is to estimate the impact each major initiative has on the increased revenue and define this impact as a percentage. For example, if Salesforce impacted the revenue increase by 25 percent, multiply 25 percent by the ROI calculated to find the profit related to Salesforce.
Process Improvement and ROI
For simplification purposes, Salesforce and related benefits from process improvements become one. But don’t forget to deduct process improvement costs from the ROI number.
The same challenge exists for information systems not associated with sales and the use of cost savings as the ROI. For example, if the cost savings was only caused by a new scheduling and time tracking system for employees, calculating ROI for this system is straightforward: take the aggregate of the cost reductions for a particular period, less the new system’s total costs for the same period of time (initial cost plus costs of operating the system during the period). Again, the time period needs to be long enough to show impact.
However, actual situations are much more complex. In a particular operational area, new managers, new employees and/or new processes can create cost savings. In that case, the same approach can be used by multiplying the percentage of improvement attributable to the new system by the cost savings. Related process improvements over the same time period less costs should be added to the ROI calculation.
Increase ROI with Salesforce by Increasing User Adoption
Increasing user adoption for Salesforce is absolutely important, and adoption rates must be measured and monitored to ensure high levels are consistently achieved. Low adoption rates indicate problems that need immediate attention.
In addition, if parallel systems, such as Excel, and legacy systems, continue to be used after implementing the new system, the parallel system should be eliminated.
Businesses that seek to gain market share, or are preparing to be sold or merged, might need to measure ROI in terms of meeting one or more of these objectives rather than profit or cost savings.
A business can also have qualitative ROI considerations such as improved morale, attracting better talent, becoming more green, consistent legal compliance, etc. Achievement of these objectives may also play a major role in ROI considerations.