What is my TCO and ROI? These two questions are the most frequent ones asked when selling software. Estimate your TCO and ROI before you start the project then calculate the actual values when the project is completed.
TCO
Total cost of ownership for the implementation of business management software (ERP, CRM, or accounting software) includes at least the following factors:
- On site or hosted infrastructure
- Contract services for infrastructure maintenance or internal IT staff costs
- Software
- Software annual plans
- Professional consultants
- Temporary and regular staff costs
Onsite Infrastructure includes servers, devices, telecommunication lines, power, room conditioning, insurance, space rental, etc. Small companies may brush this off as the corner closet at no cost until they find that maintaining that server costs plenty in contract services to come on site once a month. Larger companies will have considerable investment to install and maintain several servers in a secure space, including contract services or IT staff.
Hosted Infrastructure monthly costs are easy to identify for Infrastructure as a Service, IaaS.
Software includes operating systems, malware protection, backup software, databases, application software and annual maintenance plans for each. Or, again, keep it simple with a recurring monthly cost of hosted software and top of infrastructure, SaaS.
Professional consultants? Again the cost calculation is easy, but is the estimate correct up front? Read the chapter in my book entitled, Swim With Your Software Vendor Without Getting Stung.
Temporary and regular staff costs are usually overlooked, but could well represent a major portion of costs. Failure to recognize that allocating additional and adequate internal staff time to an implementation is a major cause of implementation failures.
ROI
Return on investment begins with analyzing work flow processes, how long each process takes to complete, the time savings to be recognized, and eventually the cost savings. The ROI calculations are easy. Arriving at an accurate estimate of time to be saved, processes to be eliminated, revenue that will increase, whether staff can be cut back or not hired, whether inventory can be reduced – these are the tough questions. It’s a little bit like squeezing a lemon: the results from the first squeeze are easy to see and measure, but every subsequent squeeze will get a few more drops.
See the sample TCO and ROI calculation for one of our 35-user wholesale distribution clients in 2013 in Portland, Oregon using the spreadsheet located at www.rapidimplementation.com / Resources section.
Computeration provides managed IT services and business management software for the wholesale distribution industry. We specialize in providing SQL implementation, integration, reports and tools including Zap!, Flash!, and various custom integrations for EDI, point of sale systems, web sites, and transition of data from Dynamics GP to Dynamics AX. We are the Dynamics GP VAR for Idaho on the ERP Software Blog.