Since COVID-19, organizations are experiencing stress on supply chains and cash flow. We recently launched a new ROI Calculator tool to help organizations learn how to increase savings and improve operations during these difficult times.
You may be wondering:
What is ROI, and why is it important?
You run into ROI-related decisions every day.
- “Is it worth dining at the fancy restaurant that just opened up downtown?”
- “Should I buy a new Mercedes-Benz or a used Toyota Corolla, if at the end of the day, both will take me from Point A to B?”
- “Is it really worth sitting in 5-hour cottage country traffic to visit my cottage this weekend?”
The return that you expect in each of these situations – whether it is the taste of the food, experience of the drive, or the feeling of being around nature – will tell you whether it is worth the investment of money and time.
In business terms, ROI (Return on Investment) is a measure of how well an investment is performing, or is expected to perform. ROI represents the gain, or loss, that is produced compared to the amount of money invested. ROI is often represented as a percentage number. It can also be expressed as a ratio or payback period, which is the amount of time it will take for the investment to pay for itself.
In general, the higher the percentage or ratio, the better the ROI. The lower the payback period, the better the ROI.
How to Calculate ROI
The percentage formula for calculating ROI is:
Your Gain from Investment is the amount of money you will earn from your new purchase. For example, with a new Vendor Managed Inventory (VMI) solution, you will expect an increase in sales. If you keep losing inventory, you will have a lower write-off and higher inventory value.
The Cost of Investment is the amount of money you put into your purchase. For cloud-based software like an inventory management system, this includes implementation costs and subscription fees.
Every sound business decision requires revenue earned to be higher than the cost of purchase. It’s also important to regain the cost of investment over time. When searching for an inventory management software, an ROI Calculator is a valuable financial tool. Before you actually “spend the money”, you need to be confident the software provides efficient inventory management, while reducing costs and maximizing profits.
Benefits of Determining ROI of a Software Purchase
Whether you’re the decision-maker at your organization, a staff member writing a business case, or you’re simply doing preliminary research to identify possible software solutions, ROI is one of the most compelling figures to include in your presentation.
- Conduct a Comparative Analysis
Compare the cost efficiency and expected revenue across multiple software solutions, and determine which one is right for your organization.
- Measure Expected Profitability
Many ROI tools will calculate your expected savings, which will determine your expected revenue growth and profits.
- Build a Compelling Business Case
Show your team that you completed your due-diligence by not only analyzing the functionality of your new software, but by including financial justification as well.
- Prioritize Your Projects
To optimize your business operations, prioritize projects with a high ROI, and eliminate or re-visit projects where the return is too small.
How can I estimate my ROI with Clear Spider’s inventory management solutions?
Use Clear Spider’s own ROI Calculator.
To determine the gain you will receive from Clear Spider, there are a number of inputs that are measured against costs and expected returns. With the Clear Spider solution, expect savings and improvements in procurement, inventory write-off, stock-outs, and cycle counts.
With Clear Spider’s Inventory Management Solution, expect to:
- Reduce Procurement Costs by 67%
- Reduce Stock-outs by 20%
- Gain Inventory Visibility up to 100%
- Improve Replenishment Speed by 25%
These will result in higher cost savings and revenue growth, two critical business components during these unprecedented times.
Additional tools are available on our COVID-19 Resources page.