Business intelligence (BI) tools collect and analyse large pools of data so you can make better decisions. They can be a game-changer for any aspect of your business that requires data-based strategic thinking, from marketing to financial management. However, many companies struggle to measure the return on investment (ROI) of BI tools because they don’t know how to quantify the value of data analytics and visualisation features.
To calculate the ROI of BI tools, you need to consider several things:
Cost of BI software investment
When calculating ROI, you first need to sum up all costs incurred from acquiring BI software. In a simple formula, this would be:
Cost of investment = Software price + implementation cost
1. Software cost
Most BI software is cloud-based, with fee structures based on the features you need and the size of your company. For instance, Microsoft Power BI pricing starts at $13.70 per user/month for the Pro version and up to $27.50 per user/month for the Premium version. Since cloud software is subscription-based, your first year’s subscription fee will be the cost of investment for ROI calculation. More detailed ROI calculations may require you to consider the cost of cloud software over a five-year period.
2. Implementation cost
The expenses and steps associated with the overall implementation includes:
- BI Report Development – Comprising all the essential steps, report development takes a huge chunk of time and finances upon implementation. MSPs like Empower IT Solutions will spend time with the decision-makers to understand goals and objectives. Discussions will revolve around what specific business information they need, data sources and preferred visuals. Moreover, the development phase involves in-depth analysis, knowing the data points and understanding the business process.
- Mock-Up – Knowing the full scale of the BI requirement, creating mock-ups for better understanding follows.
- Actual Development – An in-house technician or an outsourced managed IT services provider will typically facilitate the development process.
- Connecting to Data Points – Defines the data sources from which the BI report will pull information. This could be from the company’s existing ERP, CRM, or any system that requires performance-based reports.
- Publishing the Report – Dashboards or reports are ready for usage. After minor revisions, testing and support come in.
- Testing – BI software needs to be tested before it can go live. As such, testing costs will include resources spent on checking feature functionality and data visualisation accuracy.
Add-ons:
- Professional support – When calculating the cost of in-house support, you’ll have to account for their average hourly rate. In contrast, MSPs typically charge a flat monthly rate for all of your IT needs, including BI setup and maintenance. If you opt for an MSP, estimate the number of months required for BI software implementation and multiply this by their monthly fee.
- Data migration – is not required when employing a BI tool. However, for some cases, data migration is recommended to display real-time values in the reports. Charges may vary depending on the migration complexity.
- Training – After the reports are up and running, you’ll need to provide training for your employees. The time and money you spend on this area will depend on the software’s ease of use and how many people will use it. Training can be included in the service package or will cost minimal adjustments.
- Data storage and backup – You’ll have to pay fees for storing and backing up all of your data in the cloud. This is usually a monthly or annual subscription cost.
BI software returns
The returns from BI tools can be difficult to quantify because most of them are intangible. For instance, BI software enables companies to make better decisions, but placing a hard figure on this value is difficult. Nevertheless, there are a few ROI drivers for BI software that you can put a number on, such as:
1. Time savings from automation
BI software automates database management, report generation, data alerts, visualisations, and content retrieval. This can free up significant time for your employees, allowing them to make more informed decisions and take on more mission-critical work.
To measure the net returns on time savings, ask your employees for a conservative estimate of the hours they spend manually managing data and creating monthly reports. Multiply this number by the BI users’ average hourly rate, then by how many those users use BI software. Finally, multiply this figure by 12 to get the annual time savings.
2. Increased revenue potential
Analysts can identify new business opportunities with data modelling and visualisations, optimise marketing campaigns, and improve sales performance. To calculate the potential returns from BI-enabled strategies, estimate the percentage increase in revenue you expect to see from using the software. Then, multiply this by the annual revenue of the specific service, product, or process you’re targeting.
For example, you could estimate a 5% increase in sales revenue for a particular service due to better analysis of consumer behaviour and buying trends. If that service accounts for $150,000 in revenue each year, the potential return would be $7,500. In general, you’ll want to be conservative with your estimates so you don’t blow the potential returns of BI software out of proportion.
3. Cost savings from insights
Cost savings can be quantified by estimating the cost reduction percentage you expect to see from using BI software. Then, multiply this number by the annual cost of the specific activity or process. Your cost reduction estimations could be based on industry case studies and the latest reports on the cost of poor data quality and analysis.
Let’s say you expect to see a 20% cost reduction in your marketing efforts due to better targeting and analysis of customer data. If your annual marketing budget is $100,000, the potential cost savings would be $20,000.
Plugging the numbers
Once you have the cost and net returns of BI software, you can plug them into a simple ROI formula:
ROI = (Returns – Cost of investment) / Cost of investment x 100
For example, if the cost of a BI software investment is $25,000 and the estimated annual returns are $40,000, the ROI would be:
($40,000 – $25,000) / $25,000 x 100 = 60%
No matter what ROI percentage you get, doing these calculations will help you set realistic expectations and justify the investment of BI tools.
BI software can be an incredibly powerful tool for business. If you’re keen on getting your hands on Microsoft Power BI, check out what Empower IT offers. We can also help you get the most out of it to maximise your ROI. Contact us now.
