The most important calculation for any software purchase is, of course, Return on Investment (ROI). ROI is a simple way to determine implementation success, and whether the project has yielded positive payback for the business. Traditionally, ROI is calculated in any number of ways, but one of the most accepted formulas is:

ROI % = (Return - Cost of Investment) divided by the Cost of Investment x 100 [Business News Daily]

As cloud software implementations overtake on-premise installations, it is necessary to revisit the traditional method of calculating ROI. The Return on Investment for a legacy system is all about understanding your current expenses, such as hardware, infrastructure, IT labor, and warehouse labor costs. It also takes into account the cost of lost or stolen inventory, duplicate purchases, non-fulfilled orders,mis-shipments, and fines.

The Traditional Method for Calculating ROI is Outdated

The promise of any warehouse management system is that it will dramatically increase visibility and accuracy in the warehouse. So naturally, after calculating the cost of the system, the ROI can be found primarily with the savings driven from near-perfect inventory accuracy and global supply chain visibility. The return is often discovered at the end of the fiscal year when there are no million-dollar write-offs, and shipping fines have been eliminated.

The Cloud Delivers a New ROI

ROI for a legacy warehouse management system is primarily concerned with the present. However, with the cloud, you need a whole new dimension to calculate future growth. All of the promises of cloud technology are proving to be true. Most significantly, it reduces or eliminates IT infrastructure costs and the staff time associated with maintenance and upgrades. This alone delivers a huge ROI for early adopters.

In fact, the Wall Street Journal reports that 30% of cloud users saw cost reductions of greater than 40% in two years. On average, organizations save 21% annually by moving to the cloud. Savings come from not having to purchase expensive databases and operating systems and from elimination or significant reduction of the professional services hours traditionally needed to customize and modify a legacy system.

We have previously reported that cloud implementations will overtake on-premise deployments by 2020. Also, 75% of warehouse management system users will be in the cloud by 2020. Logistics Management Magazine believes that cloud systems will dominate the supply chain industry in the very near future:

“Over the next five years to ten years, the on-premise portion of the market will become a very small piece, with only a few specific industries looking to remain with physical implementations.”

ROI Now Equals Cost Savings Plus Revenue

The reason so many businesses big and small are moving to the cloud is that it is proven to drive new revenue growth. Research shows that implementing cloud technology increases an organization’s revenue by 4 to 10%. Cloud ROI calculations, therefore, need to incorporate revenue growth plus cost savings against annual SaaS license fees.

Here are three ways that revenue growth affects the ROI of cloud technology:

1) Updated Software

Cloud users are always on the latest version of the software. With continuous access to the most advanced functionality available, every organization benefits from the collective genius of other users and can implement revenue-generating best practices immediately. Even better, cloud implementations mean a reduction in staff time expenses by not having to go through an upgrade process.

2) Untold Scalability

In the cloud, you only pay for what you use. That means paying only for the licenses you use today and scaling quickly to your needs tomorrow. The real ROI is not in license savings, but the system’s scalability. Cloud systems are built to scale perfectly with your business as you add users, integrate with new technology and incorporate new revenue streams. Simply put, as your business grows, the system will grow with you.

3) Built-In Agility

irms|360 has a flexible layer of business rules to adapt the system to your existing operational processes. Legacy systems require custom code modifications that come with expensive professional services fees. The real ROI of cloud technology is in its ability to customize the system to your operations without the help of a vendor. With a cloud system, you can configure business rules to fit your operations now and in the future.

With a cloud warehouse management system, your formula to calculate Return on Investment should not only factor in how far you were able to drive expenses down but how cloud technology enables your organization to bring in new revenue.

What is your plan to drive new revenue growth for your organization?

The answer lies in the cloud.