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A holistic view of your automation ROI
Your Return On Investment (ROI) is one of the most important numbers in your business. It’s likely you already know what it means, how you calculate it, and why it matters. In fact, an ROI is such a given that you might be on autopilot when you think about it.
But when it comes to automation, the process of determining your ROI can feel a bit fuzzy. Switching to automated business processes and tools might feel like a huge upfront investment and a traumatic change to your day-to-day workflows. In addition to the money you’re spending, automation means changing your operations, introducing new software, training staff, and new pathways of cross-functional collaboration.
So, what is your automation ROI and how should you think about it?
In the most general terms, your ROI refers to the amount of money you make after you invest in something. When you understand your ROI, you can better manage your business and make sure that your quarterly spend is justified. Calculating your automation ROI specifically can help you make the business case for the disruption that automation initially causes.
Technically, your ROI can be boiled down to a simple figure. But when it comes to automation, there are many paths to arriving at that number, and the number may not tell the whole story. While ROI is a simple number, there is valuable context you need when thinking about your automation ROI.
To make sure you’re not missing the holistic picture, here’s what you should know.
The full picture: Automation ROI
Your ROI is the financial ratio (stated as a percentage) that measures the profitability of an investment relative to the cost of said investment. The ROI has universal applicability because it’s a standardized, universal measure.
Calculating automation ROI
For those who are familiar with this subject, you may know this basic equation that determines ROI:
But when it comes to automation ROI, your calculation will look a little bit different. Here’s what you should do:
Figure out your yearly costs
- Calculate your workflow cost in dollars. Determine the number of minutes it takes for each employee to complete a manual task. With this benchmark, you can calculate how much each process costs you in employee wages.
- Determine your automation workflow cost in dollars. Using the same calculation as above, estimate how much each automation workflow costs. Factor in the time the process takes, multiplied by the employee’s cost per hour, multiplied by the frequency of the workflow. Make sure to add in upfront software implementation and training costs. The formula might look something like this:
Calculate the difference
Now all you need to do is subtract the cost of your automated workflows from the cost of your current manual workflows. Now you have your yearly automation savings in dollars.
Invisible factors impacting your automation ROI
Beyond the simple percentage, you may want to look at your automation ROI with more qualitative context in mind. This is true especially when it comes to data processing, management, and analysis: a component that can change your business outcomes in fairly invisible ways. For example, consider these factors:
- Cash-on-hand vs. Profits. While your business may consider something a profit as soon as a product is shipped, that doesn’t mean the customer has paid the bill, and that you have that profit’s cash on hand. Your profit and your cash flow situations could be very different, and that has major implications for your business.
- Time spent manually entering, cleaning, and organizing data. When you’re doing a simple math equation, you may not be taking into account the more qualitative savings you get. For example, if you purchase an expensive new data processing tool, and it saves you tens of hours in data management via employees’ time and workload, that won’t necessarily factor into your ROI unless you use the automation ROI formula detailed above.
- Money spent on outsourced agencies. When you make changes to your business, you may be replacing a spend on outsourced agencies and third-parties with new, internal processes.
- Time to analyze data. If you invest in tools, frameworks, or services that help you manage data, you shorten a process that usually takes months into weeks or hours. Speeding up development and analysis lifecycles impacts, but you won’t necessarily see it in a distilled ROI calculation.
- Hiring costs. Perhaps you’re looking at a significant investment as a large cost. However, in making your business more efficient, automation has allowed you to shave off a large proportion of your hiring costs, as well as the hours that go into the hiring process.
- Brand reputation. With better visibility, collaboration, and communication that comes from automation, you may experience a brand boost. While better branding does filter out into your bottom line, there’s no way to completely map it into an ROI calculation.
- Stakeholder relationships. From suppliers and third-party vendors to happier customers and employees, automation can improve the morale across all of your stakeholders. A morale boost and better culture surrounding your organization won’t factor directly into ROI, but it does have a positive impact nonetheless.
Ancillary ROI factors: An automation use case
As we’ve just discussed, ROI only emphasizes a financial component, without taking into account ancillary benefits like social good, sustainability, or efficiency. These benefits still very much matter when it comes to meeting the expectations of investors and stakeholders.
An expensive automation project may have a long implementation cycle. There’s coordination between teams, departments, and external stakeholders. There’s project planning and technological implications. While you’re putting in a lot of legwork and investment upfront, this automation may look like a losing proposition, in pure short-term ROI calculations.
You may prefer to embark on a series of lower-risk, manual projects. These projects won’t have a negative short-term impact on your ROI. But overly-customized, super manual projects aren’t flexible for your business growth, no matter what the ROI percentage number tells you. In the long run, you’re blocking the ability to scale by committing valuable resources to manual data management. You’re also draining your teams, who are better off focusing on long-term strategic projects once automation is firmly in place.
Looking holistically at automation ROI
In order to make sure your automation ROI calculations tell the full story, there are a few things you can do.
Invest in platforms that require zero experience. If software says “no code” for example, that can be a game-changing investment with a quick positive impact on your automation ROI. No long implementation cycles or complex training cycles to confuse things. If you lack in-house expertise, find the platforms and tools that don’t require teams of scientists or data experts.
Also, dig deep into your product, and understand the long-term product vision. How does the company vision align with the investments you’re putting in now? And what is it costing you now in people, time, and money, versus what it will end up costing you one year out? Three years? Five years? Pilot projects and proofs of concept will be your best friends in making the business case for automation.
An investment is more than money. You invest in your people, your product, and your longevity. What’s good for the next quarter may not be good for five years from now.
Calculate your automation ROI and use it to guide your strategy, but make sure you’re maintaining a holistic view.