By Boomi
The SaaS (software as a service) market is predicted to grow at a compound annual growth rate (CAGR) of 13.7% over the coming decade and reach $819.23 billion by 2030. So, it’s clear that businesses in all industries rely on SaaS applications. But figuring out whether the latest SaaS offering is worth the hype and how much value it will contribute to your company can be a challenging task. Read on to find out how you can measure your SaaS ROI and determine how your company benefits.
The Importance of Measuring ROI for SaaS Products
SaaS is a software distribution model in which applications are hosted and managed by a third-party provider in the cloud and made available to customers over the Internet. SaaS is typically available on a subscription basis, allowing companies to avoid the expense of purchasing and maintaining extra hardware and software. It significantly reduces maintenance costs for a business. But at the same time, subscription costs can skyrocket if left unchecked.
Calculating the ROI (return on investment) of SaaS systems is crucial for several reasons:
Improving Decisions
By measuring the value that each deployed SaaS product your business adds, you create a clear, numerical basis for your decision-making. It’s just smart business to conduct regular reviews of performance and outcomes related to SaaS tools. This empowers you to make informed choices about continuing, downsizing, or canceling SaaS subscriptions and seeking alternative solutions that better align with your business goals.
Enhancing Productivity
Your ROI analysis should identify areas where SaaS tools contribute to measurable results in operations, such as increased revenue and profitability, reduced operating costs, higher customer satisfaction and loyalty, and faster time-to-market. These goals will vary based on the team and function of your software acquisition and should be used as a baseline at the time of purchase for later review.
Increasing Employee Engagement and Retention
Focusing on SaaS ROI metrics allows you to make data-driven decisions about HR and IT investments. SaaS tools that are intuitive, help employees do their jobs more effectively, and create a more satisfying work environment can lead to increases in your internal NPS and higher levels of engagement, which correlate with increased productivity and improved financial results. This positive ROI from SaaS products should also improve employee retention and reduce turnover costs.
Boosting Revenue
Analyzing your ROI lets you identify the cost-effectiveness of your SaaS investments. You can discover if they speed sales cycles, improve customer service, increase retention, or help you scale operations more efficiently.
What is ROI, and How Do You Calculate ROI for SaaS?
ROI measures how effectively SaaS products increase a company’s revenue. Calculating your ROI allows you to evaluate your SaaS investments and make informed decisions about the future allocations of resources. In general, it’s calculated by subtracting the initial value of your investment from the final value to get the net return, then dividing the net return by the cost, and multiplying by 100 to express it as a percentage.
Another method is to divide your net profit by the Total Cost of Ownership and multiply the result by 100.
Calculating Cost and Impact for SaaS ROI
When selecting which metrics to use for gauging SaaS ROI, ensure each KPI provides insights into revenue generated or costs saved and offers actionable data that you can use to optimize the software’s performance and increase your overall profitability.
Some useful KPIs include:
- Total Cost of Ownership (TCO): Includes all expenses from subscribing to cancellation, highlighting the long-term price of your investment in the software.
- Implementation Cost: This covers all initial expenses for running the SaaS solution, from setup and integrations to employee training.
- Time to Value (TTV): The speed at which the SaaS platform delivers benefits, measuring its efficiency and effectiveness.
- Return on Time Saved: Reflects the monetary value of productivity and time efficiencies provided by the software.
- Customer Acquisition Cost (CAC): The savings involved in securing new customers.
- Customer Satisfaction: A measure of how well the SaaS application helps you meet customer expectations.
- Customer Retention Rate: The percentage of customers the SaaS tool helps you retain over time, indicating satisfaction and long-term value.
- Impact on Referrals and Sales: Assesses how much the SaaS platform helps boost customer referrals and contributes to overall sales growth, showcasing its role in business development.
Tips for Calculating the Return on Your SaaS Investments
A structured approach will help you improve decision-making, reduce risks, and maximize the benefits when forecasting the impact of your SaaS investments and aligning them with business goals. Here are some tips to consider:
Forecast Best- and Worst-case Value
It’s essential to prepare for the unexpected by determining the best and worst scenarios for the software’s costs and benefits. This means conducting a detailed analysis to predict potential costs, including subscription fees, training, downtime, and predicted benefits, which may range from direct revenue increases to improved customer satisfaction. Scenario and sensitivity analyses are invaluable here because they help identify which factors will most significantly impact your investment’s outcome, allowing for better risk management and preparation.
Decide On the Timeframe
Choosing the appropriate timeframe for measuring your SaaS ROI is crucial because the benefits are often more apparent over the long term. Consider immediate costs and anticipate an adjustment period following implementation when productivity may temporarily dip. Establish regular reviews within this timeframe for ongoing assessments and adjustments to ensure that the investment continues to align with your business goals.
Compare Anticipated Versus Actual SaaS ROI
Calculating the anticipated ROI and monitoring the actual post-implementation ROI offers insights into an investment’s performance. This allows you to adjust your strategies, address issues, and optimize the use of the SaaS solution. It validates your investment and can inform your future decisions, ensuring that the SaaS deployment continues to meet your evolving needs and contributes positively to your organization’s overall success.
Software Options for Measuring SaaS ROI
There are three options to consider when measuring SaaS ROI: developing in-house custom software, third-party SaaS platforms, or an iPaaS solution. Let’s look at each of these options in turn:
In-house Custom Software
This approach entails designing and developing analytics platforms and systems, such as bespoke Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) solutions tailored to your unique requirements and metrics. Custom software development allows you to meet the precise needs of your business and offers flexibility and control over integration with existing systems and processes. It enables precise ROI measurement and analytics specific to your services, products, and customer interactions. That said, in-house software often means high upfront costs, long implementation times, and a commitment to providing ongoing maintenance and support.
Third-party SaaS Applications
Investing in third-party SaaS applications gives you access to various out-of-the-box solutions with sophisticated features for tracking, analyzing, and visualizing key performance indicators (KPIs) related to SaaS ROI. For example, specialized analytics and business intelligence tools like Salesforce and HubSpot let you track marketing and sales ROI. Other solutions provide in-depth data on user behavior, revenue, customer acquisition costs, lifetime value, and customer journeys.
While third-party applications can save you time and resources on in-house development, they offer limited customization and integration options. They may not align perfectly with your company’s specific needs, leading to gaps in data analysis or additional costs for custom features. Reliance on these applications can also result in vendor lock-in, making it difficult and costly to switch platforms in the future. Also, ongoing subscription fees can increase, affecting the overall cost-effectiveness of your investment.
Integration Platforms as a Service
Integration platforms as a service (iPaaS) offer a flexible and scalable approach to measuring SaaS ROI. By integrating in-house, legacy, and third-party SaaS tools and systems, iPaaS solutions consolidate data from multiple sources, enabling you to leverage the strengths of each to create a cohesive analytics ecosystem. This enhances your ability to gather, analyze, and report on ROI data from across your entire SaaS stack through a unified platform.
Additionally, integrating your various applications, data, and teams with iPaaS also lets you maximize your SaaS ROI by optimizing existing processes, improving data accuracy and availability, increasing overall operational efficiency, and enabling better collaboration across your organization.
iPaaS Integration Helps You Boost Your SaaS ROI
Boomi’s integration platform facilitates faster and easier connectivity between all your applications, data, and devices, streamlining operations and enhancing efficiency. By optimizing integration across diverse systems and accelerating data exchange, Boomi empowers businesses to measure and ultimately maximize SaaS ROI.
Boomi also offers:
- Integration across various technologies, environments, and clouds
- Automated self-learning, self-scaling integration management
- Reduced manual operations
- Affordable and efficient solutions for both SMBs and large enterprises