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Software ROI Calculator

Enter the cost, annual benefit and years to get the software ROI.

How it is calculated

The tool takes one total cost, a yearly benefit and a number of years. net = annual_benefit × years − cost, ROI = net / cost × 100 and payback = cost / annual_benefit in years. Cost and benefit are in the same currency (US dollars in the output); years can be fractional. The cost must be above zero; benefit and years cannot be negative. If the annual benefit is zero, payback is shown as a dash. There is only one cost field, so add licences, setup and any recurring fees together beforehand. The tool does not discount future money, so a benefit received in year three counts the same as one received today.

Worked example

A tool costs 24,000 in total (licences plus rollout) and is expected to save 15,000 a year for 3 years. Total benefit: 15,000 × 3 = 45,000. Net benefit: 45,000 − 24,000 = $21,000.00. ROI: 21,000 / 24,000 × 100 = 87.50%. Payback: 24,000 / 15,000 = 1.60 yr, so the purchase recovers its cost in about 19 months.

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Common mistakes

  • Entering only the first-year licence fee as cost and leaving out implementation, training and later renewals.
  • Counting hoped-for savings as a certain annual benefit; the result is only as good as that estimate.
  • Reading ROI as a yearly rate, when it covers the whole period you entered.
  • Ignoring that the payback figure assumes the benefit is the same every year from day one, although many tools ramp up slowly.

Sources

About this calculator

Software ROI is calculated as (total benefit − cost) / cost × 100 over a chosen time horizon, where total benefit is the annual benefit times the number of years. Alongside it you get a payback period (how many years of annual benefit it takes to recoup the cost) and the raw net benefit in currency, giving three complementary views of whether a software purchase pays for itself.

There is a single cost field, so enter any ongoing fees as part of the total cost. IT managers, CFOs and procurement teams build this kind of business case before approving a new platform, SaaS subscription or automation tool, comparing the ROI and payback period against alternative investments or the do-nothing option.

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Comments (1)

  • Editorial team

    The ROI figure covers the whole period, not each year. The 87.5 percent in a 24,000 cost, 15,000 a year, 3-year case is a three-year total, roughly 29 percent per year on a simple average. Benefits also rarely start on day one, so shortening the years field, say to 2.5 for a half-year ramp-up, shows how sensitive the answer is to that assumption. Which benefit are you counting: time saved, fewer errors, or lower licence fees?

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