ROI: measuring the benefits of investing in technology
The acronym ROI means Return On Investment. It is a tangible way to measure the perceived benefits in exchange for an investment by a business. It is calculated by dividing the money generated by an investment (the benefit) by the money it costs to make that investment (the cost). A positive ROI (greater than zero) means that the benefit outweighs the cost and that it was a good investment. A negative ROI (less than zero) means that the cost is greater than the benefit and that it was a bad investment. An ROI of zero means that you could only recover the investment, an equally negative result. Before taking on any investment, you should calculate the ROI to confirm that it is really worth your money.
In retail, it is sometimes difficult to correctly calculate the ROI of an investment. For example, how do you calculate the benefit of installing a security system? If somebody were going to rob you but then decides not to after discovering your security system, you will never know that you were saved from having to deal with a big problem. In other cases it takes a long time to see the benefit, such as when you invest in a new POS system. You have to pay the price today when you invest, but it can take years to perceive the benefit. And these issues do not always have an accurate solution. However, it is worth taking the time to estimate as best as you can the costs and benefits while applying these tips:
1. Consider the times.
2. Talk to your employees, suppliers and customers.
These individuals have a different perspective than you do as the owner. They can tell you about certain expenses of which you are not aware. Perhaps the new POS system you want to buy is not compatible with the vendor system and the custom programming that is required to operate it.
3. Compare standard and customized systems.
With technology, there is the option of buying programs and standard equipment with the very limited ability to customize them. There is also the option of hiring consultants and programmers to develop customized solutions for your business. The standard option can save a lot of money (up to 80% or more) compared to a system made exclusively for your business. It is also easier to get updates, future enhancements and various experts to help with its use. But most likely, you have to adapt your business to the limitations of these systems. In the majority of retail businesses, a better ROI is generated by adapting to a standard system rather than choosing to develop a fully customized system.