When it comes to assessing ERP software for their business, most businesses in Kochi ask the wrong question.

“How many are they gonna pay for?” they enquire. However, the real question which will insure your investment is: "What return will this generate? These are two entirely different conversations — and one that isn't had is how companies end up with costly software that is underutilized.

This is a no-guesswork method to work out ERP ROI before you sign on the dotted line.

Why do most ERP ROI calculations go off the rails?Why ERP ROI Calculations go wrong Most of the time?

The typical error is to consider ERP as an expenditure and not an investment. A businessman makes the calculation based on the current monthly expenditure, and calls it quits.

However, ERP benefits are not just coming from one direction, they're coming from several: fewer manual tasks, quicker invoicing cycles, less stock discrepancy and better compliance. All of these are not apparent in a straightforward cost comparison.

Any good ERP software company in Kochi will tell you this point straight away: ROI can be calculated in both hard ROI (the cash you save) and soft ROI (the productivity, accuracy and decision speed you achieve).

Step 1: Identify and track any additional expenses that can be saved

There has to be a starting line to determine ROI. Sit down and make a realistic cost of poor systems statement, as it applies to your organisation on a monthly basis.

Consider each of the following questions and think to yourself:

• How many hours do you spend manually entering data in excel sheets, billing software, and inventory ledger records?

• How many times are orders delayed or complaints made due to stock errors?

• How much time and/or penalties is it worth to you to make a single wrong GST filing or an audit mistake?

• What is the time requirement for your management team to create monthly economic statements?

One of the mid-sized trading companies that we worked with, estimated that they were spending almost 180 person hours per month in spreadsheet reconciliation. Working at just ₹200 an hour, it costs ₹36,000 per month just for labour without any errors.

These are the numbers on which you start. Write them down. This is what ERP is taking the place of.

STEP 2 :Identify the categories 

ERP ROI comes in four parts. Not all will be relevant for your business, but you'll have to consider each of them.

1. Stockouts and overstocking in inventory and supply chains are expensive. The main benefit of ERP is that it can cut down the inventory carrying cost by 10% to 20% by providing real-time inventory visibility. With large businesses that have a lot to move, this can compensate for the cost of the software.

2. Revenue Cycles ERP reduces the time for order-to-invoice cycle. The faster the billing processes, the quicker the collections. If your debtor days have decreased from 45 to 30, find out the cash flow gain that results.

3. There are Manual (Error) and Compliance Costs. A notice can be raised with one incorrect entry of GST. If you're looking to reduce risk and save money when you're building your ERP software in Kochi, you should consider compliance automation.

Step 3: Create Your ROI Calculator

The standard formula:

ROI (%) = [(Total Annual Benefits − Total Annual Cost) ÷ Total Annual Cost] × 100

The annual cost of your total system = software licence/software build cost + implementation cost + staff training cost + annual support fees.

For instance, if your annual benefits are ₹12 lakh and your total annual cost is ₹8 lakh, your ROI comes out to be 50%. This payback period is approximately 8 months.

In most cases, a payback period up to 12-18 months is considered feasible and healthy for most businesses that are associated with an ERP software company in Kochi.

Step 4: Take into consideration Implementation Risk

ROI calculations are based on a successful deployment of the system. That's not a given.

Many times, ERP implementations fail or even take longer than expected. They typically have one of three root causes: poor requirements gathering, poor data migration, and insufficient staff training.

This risk is lowered substantially compared to standard ERP software solutions, as a bespoke ERP system is designed to fit your current processes, and not the other way around, with Kochi-based bespoke software development business that creates systems from the bottom up.

If you're measuring ROI, don't forget to take a pragmatic timeframe for implementation into account. Adopting and making the system live are not requirements for benefits to start; only after they are adopted and live do benefits start to accrue. 3-months late is 3-months' benefits gone.

In Step 5 the Intangible Returns are added.

Numbers help to tell part of the story. However, there are returns ERP can provide that don't neatly fall into a spreadsheet.

Real time dashboards provide quicker access to leadership for accurate data. Making wise decisions starts with data.Speeds up the decision-making process, which results in competitive advantage. These build up over time, insidiously, but effectively!

With the help of a Custom Software development company in Kochi businesses can make use of the feature of scaling up the ERP system as the business expands, without having to face replacement cycles as imposed by off-the-shelf software.

Don't neglect the unquantifiable. They do not need to be a part of the formula but they need to be a part of your decision.

Conclusion

The ROI calculation of ERP is not a difficult one to do — just as long as you're honest about your current costs and disciplined with your projections. Begin with your hidden bottom line expenses, identify your4ROI categories, use the formula and consider implementation fact.

In Esight Solutions, we assist Kochi businesses through the same process before proposing or creation of any ERP system. As a trusted ERP software company in Kochi, providing end to end development solutions, we are of the opinion that right ERP software is worth its weight and can prove it for you before making the purchase.

Looking to discover the real returns ERP can offer your business? Contact our staff today, the first conversation is free, focused and no pressure!