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For many big-ticket items, business purchases usually make a notable impact on an organization - from management and IT to the watercooler - and sometimes even get communicated out to the client (“we’re about to bring on X which will cut our response time down to verifiably proactive!!”).

 Also during those big launches there is a lot of visibility into the nature of the changes - there are consultants, and trainers, and hotlines for support - and management gets their first glimpses into reports, and although some promises inevitably get deferred, some dreams do come true. You'll see smiling managers asking how folks like the new functionality, and a few employees quietly griping about the way things used to be so much more obvious (they weren’t, btw).

Sometimes even the smallest and least expensive of new tech can have a profound effect in the company culture - those of us who have done more than a cursory trial of Slack or Trello wonder how we got along before them (whiteboards and centralized offices, mostly).What is the best method of determining SaaS ROI?

And these big changes usually provide ample anecdotal evidence of usage, right? You’re getting everything that you paid for because you remember the pain of bringing it on board. And everyone was in on the decision, so totally worth the effort, right?

For every big ticket item - Salesforce, Workday, Concur, Marketo - there are maybe 5?, 10?, more? smaller ticket items that have very real costs - integration, training, and opportunity costs for example - and the potential loss of value represented by potentially leaking or outright siloed and hidden IP.

So how do we make a case for the actual ROI of all these solutions that are potentially draining bits of time, money, and IP from your bottom line?

As you might predict, determining ROI for your SaaS investment is not going to be a one and done campaign - you'll need to build a continuous process that allows for changes in your own organization, and new technology that will come online in the future.

Our first step will be to determine what constitutes usage of a SaaS product.


Determining SaaS Usage

Let’s start with an examination of the ways that usage gets billed, and we can use those methods as a proxy for further discussion of calculating SaaS ROI. There are three buckets of current ongoing billing practices (and remember even if the service is free or a one-time purchase, there is still the ongoing opportunity cost).

Per User Billing

This is probably the most familiar method. Often described as seats, this is accounted for by having specific users with specific functions, access, permissions, and privileges within the solution. In some cases, the functions may be billed at different rates. These do tend to be specialized solutions - like Salesforce for example, or Adobe Creative Cloud. There may be bundle pricing at various numbers of seats - $X per user up to 10, $.8X for 10-50, etc. - that allow some economy of scale.

We might measure a proxy of usage of these solutions by checking logins - these people logged in a lot, but these people did not, so why are we paying for these seats, or what do we need to do to encourage the non-logins to harness the value that the solution offers.

Per Account Billing

Also very common, and usually priced with a bundle scheme per size of company, the most obvious example in my mind would be expensing software like Concur which needs to be potentially available to everyone in the company, but is likely to really be hammered by managers, directors and sales folks.

Again, we might use logins as a proxy for usage, but we might get a closer ROI calculation if we look at the number of transactions that take place in the system and compare savings to previous benchmarks.

Per Transaction Billing

I work in marketing so don’t directly encounter too many products that get billed in this way, but what does get billed per transaction by some solution vendors is support or consultation. There are many automation solutions that bill per transaction, and we're all familiar with the potential pitfalls of transactional billing because of the text message portion of our cell-phone plans.

These might be the easiest to begin calculating ROI, particularly if you have a sense for the benchmarks of work those transactions are replacing. [I, personally, am waging a war on ctrl-c ctrl-v work - it seems like any work that involves repetitive copy paste in my line of work needs to be botted, so I can have more time to think a little about alliteration, or ponder puns, or whatnot. To me those are the transactions with real value. That is ultimately intangible of course. I’m not getting paid per pun or littered with awards for alliteration. Alas.]

Determining SaaS Roi - The First Step

Having walked through these common billing methods, it seems that the transactional basis might be the ideal starting place as a proxy for determining usage. Again, this isn’t a one and done process. Your business is complex and every solution is chosen for perceived value. So as you work through your list (if you need some help in compiling a list of your SaaS portfolio, our previous post How To Create a SaaS Governance Policy offers some tips), try to establish a cost per transaction, and if that doesn't work you can fall back to cost per user or account.

This would be a good time to think through the value of those transactions. Three adjacent columns I would suggest are:

  • Result - what do the primary transactions accomplish - more sales? less confusion? Better use of available cash? A reduction in SaaS spend?
  • Replaces - what processes does the solution replace - human time? a different system? bad cash handling procedures?
  • Risk - what is at risk if we lose these transactions - does it warrant inclusion in disaster recovery plans? How many man hours would we lose if we had to attend to these transactions manually - even temporarily? how much IP is embedded in the transactions?

Conclusion

Figuring out your SaaS ROI is not a simple process. The best starting place, after starting a list of all the solutions, is to get a handle on what sort of usage metrics are most appropriate for judging the impact of the solution. For your own best time management, while you are collecting that usage information, you should also gather some key info about why you are investing in the solution - results, what it replaces, and what is at risk. 

 

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