Welcome to the newest post in our blog series, Darren’s Great Ideas! for Independent Operators.
Calculating the Return on Investment in Technology Project
When I am out in the field visiting members, they frequently ask me about technology. Operators are often wondering if they should upgrade their pumps or their point-of-sale system, invest in a mobile app, update their web site or purchase digital devices, such as a menu board.
As with any major purchase, business owners also want to know what the return on their investment (ROI) will be, but that isn’t always easy with technology investments.
To start, it is helpful for operators to gather information about the benefits of the technology they are considering, such as increased speed of service for their customers or their employees, which can result in decreased costs and an improved experience.
From there, operators can begin putting a pencil to paper. Let’s say you find new point-of-sale technology that can save employees time counting a till, and it saves you one hour and you’re paying that employee $15 an hour and you have three employees on shift. Now you have a number associated with your return. You may also find that an updated POS system provides a streamlined reporting process, allowing you to take care of it faster, or create a loyalty program that will allow you to establish a correlation of growth. Those are all quantifiable benefits.
When looking at the ROI on a digital menu board, operators can add up all of the costs for the menu board, installation and ongoing costs, then tally up the projected sales increases. I’ve had members tell me they are seeing increased sales ranging from 5 percent to 15 percent once they install a digital menu board. Now, that could be a correlation rather than a causation, but it still gives you a number to start with. You can take those figures and calculate how much of increased sales result in profit, which will tell you how long it takes to see a return.
However, other technologies can be more ambiguous, which can make it a challenge for people who want to invest in them. But just because you can’t always quantify the true gain of an investment, doesn’t mean you shouldn’t do it.
In those cases, operators can ask themselves five questions:
- Is the proposed project critical to the business?
- What are the risk factors?
- Who will be impacted by it, either positively or negatively?
- What will employees and customers have to re-learn with the new technology?
- Is an ROI necessary for approval and support of the proposed project?
There is no single right way to conduct a ROI on technology. The best advice is to focus on the strategic objectives along with the goals and benefits of the proposed project.
/// Read more Darren's Great Ideas for Independent Operators posts here.
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