Depending on the sector your business falls into, you’ll want to implement technology solutions designed to help you be successful in the context of that sector. Part of that means investing in new solutions that can yield a satisfactory return on investment, or ROI. But how do you know if a solution can yield a good ROI, and most important of all, what kind of math goes into ensuring you’re not overspending on IT that doesn’t produce results?
Understanding ROI
In short, ROI is essentially determining what you’re making back as a result of an investment.
No business owner wants to sink loads of capital into a new technology solution, but sometimes it’s necessary to fulfill a certain task or carry out a specific plan. In the context of business technology, a large investment in a new product or solution can often be less intrusive on your budget, time, and effort than operating without that solution, but you won’t know unless you’re being forward-thinking about the issue and projecting ROI in the future. You should be asking if the rewards justify the expense; that right there is what return on investment truly means.
While there will always be a certain level of risk associated with implementing a new solution, we’ll get into how you can calculate return on investment for your business technology so you can take most of the guesswork out of any new implementation you’re considering.
How to Calculate ROI
Below you’ll find the most basic equation for calculating ROI:
ROI = ((Net Gain) / Cost) * 100
As for how net gain is calculated, it’s how much you spend minus how much you’ve made. If you spend $50 to make $100, then your net gain ends up being $50.
ROI = (50/50) * 100 = 100%
This means you’ve achieved a 100% return on your investment, or double what you invested. Congratulations, your investment paid off!
Net Gain and Costs Aren’t Always Clear
What happens when the net gain and net costs aren’t clear or easy to figure out, like they are in the above scenario?
Imagine all that goes into a new project: operating costs, implementation costs, payroll, opportunity cost, and so much more that is not necessarily clear. All of this can affect return on investment. Whenever you think about implementing a new technology solution, it’s best to also think of it in terms of how much time is being spent or saved, as well as what the initial cost of implementation might be; this will help you make the best choices possible for calculating ROI.
Need a hand with IT project implementation? We’ll help you do it so you can achieve a net-positive return on your investment. To learn more, call us at (732) 360-2999 today.