How to Calculate SaaS Product ROI?

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How to Calculate SaaS Product ROI?

SaaS stands for Software as a Service. It is an approach under which business organizations and individuals make use of different types of software through the Internet, so that ultimately they wouldn’t have to install them in their respective computer systems. After purchasing a SaaS product, businesses need assurance of deriving the utmost value. One way to know that a SaaS product is truly worth the cost will be by knowing the ROI—Return on Investment. Let’s now explore the definition of ROI and how it is calculated for a SaaS product.

What’s ROI?

ROI stands for Return on Investment. It measures the value of something compared to its cost. If you spend $100 and make $200, your ROI is 100%. In simpler terms, it shows how much you gain from what you invest.

Why is ROI Important for SaaS?

ROI is crucial as it enables businesses to assess if the SaaS product is providing them with adequate value for their investment. The higher the ROI, the more it definitely confirms that the SaaS product is helping the business in a beneficial way. If the ROI is low, the business may reconsider the product’s continued value.

Here is how you would calculate ROI for a SaaS product:

Step 1: Find the cost of the SaaS product.

The first step is to estimate SaaS product cost. That could be fees, subscriptions, or any other cost associated with its usage. If you have a $50-per-month SaaS product, the cost for one year will be 50 * 12 = $600.

Step 2: Identify the Savings or Benefits

The next thing you need to do is figure out just how much that SaaS product is helping your business. That could be in the form of savings or added revenue. Some examples include:

  • Time Saved: If a SaaS saves employees’ time to complete a particular task, the company saves on labor costs.
  • Increased sales: The business can count the additional revenue as a benefit if the product helps it generate more sales or attract more customers.
  • Cost savings: If the SaaS product saves on costs in other areas, such as saving on extra staff or resources, that can also be part of the benefit.

Step 3: Use the ROI Formula

Now that you know the costs and the benefits, you can find the ROI. The formula for ROI is:

ROI = (Benefits − Costs) / Costs × 100 \text{ROI} = \frac{\text{Benefits} – \text{Costs}}{\text{Costs}} \times 100ROI = CostsBenefits − Costs × 100

For instance, if the SaaS product costs $600 annually and generates $1,200 in benefits (such as increased sales or time saved), the return on investment would be as follows:

ROI = 1,200 – 600600 × 100 = 100% \text{ROI} = \frac{1,200 – 600}{600} \times 100 = 100\%ROI = 6001,200−600×100 = 100%

That means for each dollar invested in the SaaS product, the company got an extra dollar in benefits; hence, a 100% return on investment.

Step 4: Interpret the result.

Once you know the ROI percentage, you can decide if this SaaS product is worth your investment. A positive ROI will tell you the product is helping. A high ROI indicates that the product holds significant value, while a low or negative ROI may indicate that the company should consider alternative products.

Example of Calculating ROI

Suppose a business spends $300 per month on a SaaS product to help manage customer relationships. The product saves the business $150 in labor costs and generates $600 in new sales each month.

  • The annual cost of the SaaS product is $300 x 12 = $3,600.
  • Benefits (savings and extra sales) per year are as follows: $150 x 12 = $1,800 in labor savings + $600 x 12 = $7,200 in new sales = $9,000

Now we can calculate the ROI:

ROI = 9,000 − 3,6003,600 × 100 = 150% \text{ROI} = \frac{9,000 – 3,600}{3,600} \times 100 = 150\% ROI = 3,6009,000−3,600×100 = 150%

The company has a 150% return on investment, which is very good!

Why ROI Matters

Calculating the ROI allows businesses to make improved decisions. It helps in determining whether the SaaS product is worth the cost and whether it is assisting a business grow. If the return on investment (ROI) is high, the business has the option to retain the product and potentially increase its investment. If the ROI is low, the business should either look for a better SaaS product or discontinue using their current one.

Conclusion

We can measure the ROI of a SaaS product in terms of its value to the business. A person must calculate the product’s cost and then its benefits or savings. After that, you can apply the ROI formula. The higher the ROI, the greater the value of the product for the business. ROI helps businesses make intelligent decisions about ensuring they get the most out of their investment in SaaS.

 

 

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