Companies continually need the most modern collaboration software to conduct business in their highly competitive markets. Collaboration software has been making inroads into a majority of industries and job functions. It allows functional and even cross-functional teams to work together on managing projects, teams, visualization of data, sharing of files, discussions, messaging and more. Some examples of collaboration software are – CRM for sales teams, marketing automation, project management, software development, legal matters etc. Many companies have mastered rapid, accurate and cost-efficient business processes (for example software development) through the use of collaboration software.
Collaboration software improves project efficiencies and reduces delivery risks by standardizing processes, automating simple tasks and centralizing communication and documentation. These tools also provide a high-level picture of the project timelines, status, and dependencies – such that the project team can easily visualize where bottlenecks might occur. This helps product managers and project managers better allocate resources and plan for effort.
The preferred metric for measuring the customer business value of SaaS collaboration software is the ROI (Return on Investment). The ROI can be calculated for the collaboration software used by your company, which can then be used to justify the investment. In this article, we will lay out a practical approach for measuring the ROI from the use of collaboration software.
Identifying the factors that determine ROI
ROI helps us answer the basic question – what will be the net business benefit from investing in the SaaS software.
The simplified formula used to calculate ROI is:
ROI = (Gain of Investment) – (Cost of Investment) / (Cost of Investment)
ROI can be expressed as a factor (such as 3X or 5X), or as a percentage (such as 300% or 500%).
In order to make any quantification of ROI associated with the use of Collaboration Software, one should start by qualitatively identifying the elements that constitute the gain on the investment. The gain of investment is the amount of time and money you have saved by using the software. This also include any potential upside to your revenues. Elements that should be considered include:
Time and/or cost savings per project – which considers project efficiency through operational cost reductions. The time savings for employees translate to wages, and company overhead costs (e.g., rent, office costs). Improving productivity reduces the cost of development.
Capacity for more projects – increased productivity ultimately allows you to take on more projects or product enhancements with the same number of team members.
Indirect efficiencies gained with more productive and satisfied employees – employee morale and satisfaction make a difference and, although somewhat difficult to quantify, affect productivity that in turn impacts project costs and the capacity to take on more projects. Employee morale also leads to employee retention and continuity of knowledge at a workplace.
There are also other indirect impacts of productivity decline that should be noted, particularly the cost of losing customers because of poor project execution, cost overruns and/or delays. The opportunity cost of not having time for new business development should also be considered. These opportunity costs will manifest on the top line (revenues), and are generally harder to estimate compared to the cost savings.
The other half of the ROI equation is the cost of investment; a more straightforward calculation that includes the cost of the collaboration software. With a SaaS model, the cost per license is simply multiplied by the number of users and the time period of the project (total project or individual Sprint). In addition to the software subscription, another component of the cost investment is the requisite installation, training, and periodic maintenance, specifically at the onset of the SaaS subscription — both labor and any outside costs. Typically, these other costs are low for SaaS as they get rolled into the monthly subscription fees.
The ROI Calculation Process
At DreamCatcher Software, we help customers quantify the ROI for executing a project when using our DreamCatcher agile collaboration software. Every team and project are different so it can be somewhat complex to convert time saved into a dollar amount. That said, here is a simple process to work with, with DreamCatcher as the example.
In the current state and before using the collaboration software, start by measuring the time and cost of implementing a typical sprint with your current processes. This measurement includes the project duration, number of team members and their respective salary costs – either unburdened raw salary or burdened cost (i.e., salary, overhead, profit). This is your baseline cost. Then, using the collaboration tool, measure the time efficiencies gained by each team member in completing their respective jobs by standardizing processes, centralizing communication and collaboration, automating simple tasks, reducing deployment delays and centralizing documentation. For the first use of the software collaboration tool, you should factor in the time for installation, orientation and training.
Typically, we see 20% time to market efficiencies immediately gained using the DreamCatcher, with the primary efficiencies realized in the product requirements and design stages of a particular Sprint. The efficiencies can steadily improve over time as the product team gets more familiar with the collaboration tool as well as accompanying Agile methodologies and project management processes. Depending on project size, the gain of investment achieved can be many hundreds of thousands of dollars on a large project. A substantial ROI of 20X can be realized using DreamCatcher as an example.
What ROI to expect from SaaS
It goes without saying that the higher the ROI, the better it is for the business case. That said, a minimum ROI of 100% is expected by customers in SaaS. It would be a difficult sell if the ROI is below that. An ROI in the range of 3X-5X (300-500%) is considered quite respectable. There are some SaaS products that can deliver ROI in excess of 10X, which would be considered exceptionally good. We estimated the ROI from DreamCatcher to be in the 20X region.
The ROI on the ROI Measurement
Collaboration software is an incredibly economical tool to efficiently manage your team functions and cross-functional dependencies. According to the many industry groups tracking project management efficiencies, organizations that use any type of project collaboration or management tools are better at meeting budgets; staying on schedule; and meeting project scope and quality standards. Cost savings, realized in maximizing the accuracy and speed of completed projects, allows capacity to accomplish more projects with the same amount of resources. In addition to increasing efficiency, and improving performance and output, project collaboration tools can also help improve the “soft side” of project management by boosting team morale and collaboration. The time spent in calculating the ROI is well worth the benefits; the ROI on ROI measurement is quite good!
Considering all the variables involved, ROI calculation is not an easy task, especially because many of the costs and benefits are not directly quantifiable. However, by investing the time to make a solid ROI calculation, you will be able to present a compelling argument to stakeholders and decision makers about why your choice of a collaboration software is the best route forward for your company.