When doing a cost analysis between two solutions, it’s tempting to compare based on sticker price alone. But that’s barely scratching the surface – heavier implications lurk underneath. In this resource, we’ll guide you through how to holistically evaluate ROI, including direct and indirect costs and savings, how long it will take to get a return, and tying it all back to the goals of your team to make a powerful case for change.
At the end of this guided exercise, you’ll be able to articulate investment impact statements like:
BY INVESTING $9,845 IN NEW TECHNOLOGY, OUR ORG WILL SAVE $79,155 OVER THE NEXT 5 YEARS
BY INVESTING $9,845 IN NEW TECHNOLOGY, OUR ORG WILL SERVE 3,032,759 MORE CLIENTS OVER THE NEXT 5 YEARS
BY INVESTING $9,845 IN NEW TECHNOLOGY, OUR ORG WILL CREATE $1,583,100 MORE IN IMPACT OVER THE NEXT 5 YEARS
Step 1: Removing Resistance
Do you know how much your technology processes are costing you? Do you suspect you can do better?
Getting buy-in from your team for implementing new systems consists of more than just proving ROI. Correctly calculating the return-on-investment is necessary, but not sufficient. Decision-making is inherently emotional, so you’ll need to know how to overcome emotional obstacles and resistance
Consider who you have to convince. Who are the decision-makers and stakeholders? Determine in which way they are stakeholders in either the old system you’re looking to change or the new system you’re looking to implement. Might any of them feel personally attached to the current system, perhaps because they were responsible for creating it?
You’ll want to be empathetic and considerate of their positions. Frame your value proposition using the point of view of their self-interest. What are each of their personal aims, goals, values?
When it comes to your Executive Director, they will only want to know one thing: How does it advance the mission. They don’t care about how slick a technology is. Make sure you understand how this change will ultimately support the organization’s mission.
Appeal to the organization’s goal. Is it to serve more people? Is the goal to cut down the staff hours it takes to run reports? If you can demonstrate to someone how this will improve their life, make their job easier, and serve their needs, they can start getting excited about new opportunities and be on board to move forward, and ready to break the status quo.
Now that you’ve identified what the project goals are, pick measurable outcomes to determine what metrics you’ll use to track those goals. Some to consider might be:
- Staff hours (or workdays) saved per year
- Increase in single donations
- Increase in recurring donations
- Increase in new donors
- Increase in reengaged donors
- Increase in new email list subscribers
- Reduction of time spent on grant reports
Using the worksheet:
Enter your basic information in the “Org & Metrics” tab, such as your organization name, what the mission is, and the metrics or goals you want to track to define success of the new project. This will populate the final calculations, and infuse your numbers with the impact and meaning behind them!
STEP 2: Making your case WITH ROI
Now that you are clear on your collective goals, you can prepare your case using facts and numbers. Download the worksheet here. (It’s fun, I promise!)
As we know, your return-on-investment is calculated as (Savings – Costs) / Costs. But this seemingly simple formula is comprised of many details. Let’s discuss how to break out and determine all of the costs involved.
Costs
Embarking on a new tech project is like building a house. Of course, you want as much house as you can get for your money, but you want to make sure you have some left over for new furniture and hiring the movers! Just like building a house, your project (and related costs) consists of three phases: design, build, and maintenance.
First, there is a design and planning phase. If for a house construction project you want to think about how many bedrooms and bathrooms you want and how large, for a tech project you want to outline the requirements for the new system and what jobs it needs to accomplish. It will also be helpful at this point to document your team’s current processes for getting those tasks done (new technology + old process = really expensive new technology!). Now you’re ready to start evaluating your options for providers. Calculate these costs by estimating the staff hours each of these will take and multiplying them by the average staff wage (if unsure, use $25/hour).
Second is the build, or implementation, phase. Costs related to this phase include staff time related to project management, installation, training, and preparation of data for migration. Don’t forget to account for any overlap in fees between your old and new platform, as well as any early contract cancellation fees that might apply. A commonly overlooked cost is also processing fees! Consider what your organization is paying in processing fees (both merchant and platform fees) in your current versus new provider per year.
Finally, you will have recurring maintenance costs related to this project in the form of annual subscription fees, support fees, add-on items, and continuous staff training. Don’t forget to consider what those will be for the new platform and plug them in. Don’t be shy in asking for all of these costs upfront during your demos with potential vendors!
Using the worksheet:
Plug in your estimated costs into the “Costs” tab. The totals will automatically calculate for you, as will your processing fees based on the information you entered in the first tab (if any). Entering “Assignees” to any phase is completely optional, use it only if it helps your process.
The costs of your design and build phases are combined to get the Total Upfront Investment (this is what we enter into the “Cost” of the ROI calculator). (Your maintenance costs will be included separately, in your savings calculations).
Now that you have a much fuller picture of the costs you can expect associated with this investment (and when they’ll be incurred), we can calculate the anticipated savings.
Savings
Just like costs, there are both direct and indirect savings, so let’s cover them both.
Plug in the direct costs of both the old and new system, including hosting, licensing, support, and processing fees. The difference between the new and old system will give you the direct savings.
Your indirect savings will be comparing the time spent on specific jobs your staff need to do, such as running reports or entering and managing data within the systems. Survey your team to understand what each of the tasks is and how long each takes (annually).
Now, calculating how long these take on the new platform can be tricky, and often you won’t be able to reliably guess until you try using the platform. This is where a free trial of the platform can come in very handy, so again, don’t be afraid to ask for this from any vendors you do a demo with whose product you’re seriously considering.
Using the worksheet:
Enter the time and money spent on the old system versus the new system, and the worksheet will auto-calculate your savings. The totals of your direct and indirect savings are combined to get your Total Annual Savings.
ROI Analysis
Your ROI analysis should take into account the Total Upfront Investment (cost) and subtract it from your Total Annual Savings (savings), over the course of time. An important and often overlooked consideration is how long it will take to get that return on investment and to know how many months it will take to break even. It’s not unusual for it to take more than a year! But if your calculations indicate it will take longer than 5 years, know right away that this project is not worth pursuing. This number is called the 5-Year Gain.
For your convenience, the worksheet includes all of the formulas and calculations. So as long as you fill out the Costs and Savings tabs, upon opening this tab, you’ll find your 5-Year Gain and ROI percentage is already magically calculated!
Using the worksheet:
You will also see auto-generated impact statements based on the metrics you entered in the first tab of the spreadsheet. These are pre-filled with example information, so feel free to adjust to your needs. This is all designed to serve as an inspiration and a starting point in evaluating your unique organization’s needs. We hope it helps!
STEP 3: FOLLOWING UP
Once you’ve convinced your team to pull the trigger and have started implementing the system, your work isn’t done yet. Regular check-ins will help with the adoption of the new project and build confidence long term. Uncover any surprises or friction points early on, and bring them up to the support team of your new vendor to get help in facilitating new processes.
And at the end of the project, don’t forget to follow up and report back. How did the financial and time estimates compare to what actually happened? Creating these habits of thoroughness, data-driven decision making, and follow-up will continue to instill confidence in your leadership and decision-making, and every time you make a new proposal you’ll already have a solid foundation of trust built under you.
Resources
- Our ROI Calculator & Analysis Worksheet
- Social Impact Calculator
- Measuring Social Impact on Technology Investments
- For funding, consider also applying for technology-specific grants, such as the Toolbox Grant
- TechBridge
- NTEN
Acknowledgments
We want to thank TechBridge and NTEN for the deeply informative session “Demonstrating ROI on Tech Projects to Win Leadership Approval” presented by Karen Cramer, Sean Williams, Julia Toepfer, Elizabeth Quick at the Nonprofit Technology Conference March 2019 (#19NTCTECHROI), on which this guide and worksheet were based.
