Determining The Return On Investment On A New Software Purchase

Senior Vice President of OrderInsite, delivering executive leadership in innovative pharmacy technology solutions. Connect with me.

Shutterstock

There"s no way around it: Companies often need the most modern software. Yet software costs money, something most companies don"t have excess amounts of lying around.

To make purchases more appealing to stakeholders and decision makers, you may need to calculate the software"s return on investment. However, this is a complicated calculation -- it"s important to get it right so you can rest assured your company will be investing its money wisely.

Don"t make a poor estimate that might damage your stakeholders" trust in you or even result in a bad decision. Follow these guidelines to learn how to calculate the return on investment for your software purchase in a straightforward, accurate way.

What Is Return On Investment?

A return on investment, or ROI, isn"t an abstract term. It"s a specific calculation of an investment"s cost versus its benefit. ROI is always calculated the same way, whether it"s for software or anything else.

The formula used to calculate ROI is as follows:

ROI = (Gain of Investment) - (Cost of Investment) / (Cost of Investment)

Let"s break down the two components of this calculation, one at a time, and consider how they relate to software purchases in the health care or pharmacy fields.

Gain Of Investment

Your gain of investment is the amount of money you stand to gain from implementing the new software system. In some lines of work, the gain is easy to calculate. For instance, if a retail store opens an online storefront, it will almost certainly see an increase in its sales.

In the pharmacy or health care business, you won"t see a clear increase in revenue. What you"re more likely to see is a decrease in costs.

For instance, many health care providers and pharmacies have obligations to regulators. If they don"t adhere to regulations, they may end up with a fine. Many software packages offer safeguards to make sure companies adhere to all regulatory requirements, thus reducing the likelihood of these fines. The money you don"t pay out in fines would be a gain in investment.

Likewise, many software packages have features that will help you do the work you already do more efficiently. The time you save, and the extra work you"re able to take on as a result, represents another part of the money you gain.

Finally, remember that for most companies, your new software will replace an old system. That old system cost you money, whether it"s through licensing fees for the software you used or the smaller costs associated with an old-fashioned pen-and-paper record system. You can factor the money you"re not spending on the system into the gain of investment.