ROI example assumptions
This page shows the ROI arithmetic of Measuring ROI on one worked example, a small store in its second year. It exists so you can see how the pieces fit, then replace every figure with your own in the ROI worksheet.
Warning
Example assumptions: replace with your own. Every amount on this page is an invented, round figure in a neutral "currency unit". None is a price, a quote, a market rate or a measurement of any real site. The only facts are the ones with a source, such as the license fee of zero.
The example
A small store that has run on Exponential for a year, with the built-in shop, PayPal payments and a newsletter. The question for its second year: does the online store pay for itself?
Example assumptions: replace with your own
| Input | Example value | Where your own figure comes from |
|---|---|---|
| License fee for Exponential | 0 (fact) | README.md, "License": free of charge under the GNU GPL |
| Hosting | 100 currency units a month | Your host's invoices |
| Support from a partner | 1,500 a year | Your contract |
| One planned update and maintenance job | 2,000 a year | Your partner's quote (Cost of ownership for owners) |
| Staff time for products and orders | 5 hours a week, 48 weeks, at 30 an hour | Your time records |
| Online revenue (order value) | 60,000 a year | Store dashboard and product statistics (Store reports) |
| Payment provider fees | 3 % of online revenue | Your provider's statements |
| Share of online revenue that is new (would not have come otherwise) | 50 % | Your own judgment, written down with its reason |
| Gross margin on sales | 40 % | Your bookkeeping |
| Staff time saved on phone and mail orders | 3 hours a week, 48 weeks, at 30 an hour | Your time records |
| Realization of that time saved | 50 % | Your own judgment |
Step 1: the costs for the year
- Hosting: 100 x 12 = 1,200.
- Support: 1,500.
- Update and maintenance: 2,000.
- Staff time: 5 x 48 x 30 = 7,200.
- Payment fees: 3 % of 60,000 = 1,800.
- License: 0.
- Total costs: 1,200 + 1,500 + 2,000 + 7,200 + 1,800 + 0 = 13,700.
Step 2: the benefits for the year
- New revenue: 50 % of 60,000 = 30,000.
- Gross profit on new revenue: 40 % of 30,000 = 12,000.
- Staff time saved: 3 x 48 x 30 = 4,320; realized at 50 % = 2,160.
- Total benefits: 12,000 + 2,160 = 14,160.
Step 3: the result
- Net benefit: 14,160 - 13,700 = 460.
- ROI: 460 / 13,700 x 100 % = about 3.4 %.
In this example the store just pays for itself. The result depends most on one judgment: how much of the online revenue is really new.
Sensitivity: what moves the result
Change one input at a time and recalculate. All values are example assumptions.
| Change | Benefits | Costs | Net | ROI |
|---|---|---|---|---|
| As above | 14,160 | 13,700 | 460 | about 3.4 % |
| New share 70 % instead of 50 % (gross profit 40 % of 42,000 = 16,800) | 18,960 | 13,700 | 5,260 | about 38.4 % |
| Staff time 3 hours a week instead of 5 (cost 4,320) | 14,160 | 10,820 | 3,340 | about 30.9 % |
| No planned update this year (cost 0 instead of 2,000) | 14,160 | 11,700 | 2,460 | about 21.0 % |
Arithmetic for the rows: 16,800 + 2,160 = 18,960 and 18,960 - 13,700 = 5,260, 5,260 / 13,700 = 0.384; 13,700 - 7,200 + 4,320 = 10,820 and 14,160 - 10,820 = 3,340, 3,340 / 10,820 = 0.309; 13,700 - 2,000 = 11,700 and 14,160 - 11,700 = 2,460, 2,460 / 11,700 = 0.210.
Tip
Leaving out the update to improve the figure is a false saving: an unmaintained site costs more later. Keep a yearly line for updates, as Budgeting for upgrades and maintenance plans for in its maintenance calendar.
What this example leaves out
Things that are real but hard to put a number on, to describe in words beside the figures:
- the value of customers who come back, and of the newsletter list;
- less risk from running a maintained release line (
SECURITY.md); - the cost of an outage avoided (Cost of downtime worksheet).
Replacing the figures
- Copy the ROI worksheet.
- Fill each line from the source in the third column of the assumptions table, never from this page.
- Write the reason next to every judgment (new share, realization).
- Ask someone outside the project to redo the arithmetic.
Related pages
- Measuring ROI
- ROI worksheet
- Worked example: a small store
- Return on investment of stability
- Free documentation: this page is free to copy, translate and improve under the GNU FDL 1.3.
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