Welcome back to our Automation Journey series! We’re progressing nicely along our path to automation enlightenment, having already examined how to identify the right process to automate, and what to consider when researching vendor options. Now it’s time to take the next step in the journey.
Step three: Calculating ROI
In broad terms, ROI is a financial metric to predict how profitable an investment is likely to be relative to its cost. It’s a key part of the business case when seeking approval for a project, and is generally straightforward to calculate.
However, when it comes to automation, ROI is often harder to measure, more nuanced (and in many ways greater) than you might imagine. Let’s look at three key questions to consider for return on your automation investment:
I. What does the process currently cost when performed manually?
To determine automation ROI, you first need to calculate what the process currently costs to perform manually. This is harder than it sounds.
Using sales order entry as an example, it can be tempting to simply pull out a stopwatch and time how long it takes a CSR to key an average purchase order into the ERP. Doing that may give you a baseline indication, but it’s by no means a reliable assessment of actual time spent on data entry. It doesn’t take into account the human distraction factor.
Consider the friction involved in repeatedly switching between tasks. Your typical Customer Service Rep doesn’t spend the entire day with their head down, keying in orders one after another. There are endless interruptions, perhaps answering a phone call, helping a co-worker, or chasing info for a customer. The loss of focus time significantly compounds the cost of processing even one order manually.
Next, think about how else you might be ‘paying’ for manual order entry. If a customer includes an obsolete stock code on their order, does the CSR simply remove it? Or do they contact the customer to upsell or substitute with a replacement product? What about mismatches between units of measure? The Lucy automation tool won’t decide how to handle these discrepancies the first time they arise, but she will bring them to your attention and remember the action you instruct her to take. When the issue invariably pops up again in future, Lucy will correct it instantly.
II. What do the proposed solutions cost by comparison?
This comparison can also be tricky if the true cost of a solution ends up higher than just face value SaaS fees.
Remember to factor in any additional costs to scale - depending on their pricing model, some vendors may become less economical as your business grows. A common pitfall with sales order automation is the charge-per-trading-partner model. With a solution like this, the more you automate, the more you pay.
Look for vendors with more flexible scaling options to get the most cost-efficiency from an automation solution. Take advantage of ROI calculators to help you crunch the numbers.
III. Are there adjacent savings to be made as side effects of automating this process?
Automating sales order entry, for example, can result in fewer keying errors, fewer returns, less time on invoice disputes, quicker delivery, happier customers, happier staff...
These benefits aren’t as easy to measure in terms of dollar savings, but they’re just as important (some would argue more). For many businesses, this is the true ROI.
Consider the Lucy customer who was able to promote a CSR into a more senior Sales role once she was free of all the data entry. Or the Lucy user who identified thousands of dollars in missed sales opportunities pre-automation, due to incorrect stock codes. We’ll talk more about forensics in a future instalment – they're an important (and often overlooked) benefit of automation.
The money a business can save by adopting automation is not trivial. We’ve even developed a Lucy savings calculator if you’re curious how automating order entry might benefit your business. But it’s also important to remember that the dollars you save each year are really only the tip of the ROI iceberg.
Ready to move onto the next chapter? You'll find it here - Step 4: Evaluating early results.
Ready to speak to an automation expert? We’d love to chat.