In business, every purchase must be justified. This includes, but is not limited to discussing how the purchase affects your NOI (Net Operating Income), and whether the purchase offers long term ROI (Return On Investment). For your financial analyst, this process of calculating ROI is simple enough — they have specific formulas relevant to your business that looks at the costs of your purchase and the expected benefits from that purchase over time to calculate that ROI. This serves a specific purpose of calculating expenses, worth, and other specific numbers that translate to the financial state and success of a business. But in reality, ROI is important to more than just the financials of your business — it’s important to perceived efforts and success as well.
The Trouble With ROI Calculations
Business 101 tells us that direct costs associated with purchase and onboarding of a service like property management software is key to the calculation of that software’s ROI to a business. But it’s the indirect costs that affect your perception of the efficiency of that software and your success in utilizing it.
Let’s take the example of a new car purchase. Let’s say you’re purchasing a new car to replace a model you’ve had for upwards of 10 years. Excited by this new purchase, and the change in technology in that time, you’re willing to splurge for this new car, for something more on the luxury end. You calculate the cost of the car, your down payment, and the cost of any insurance changes and decide that this is an economically viable option for you. You make the purchase with excitement.
Down the line you take the car in for its first oil change. You get the bill and it’s triple the cost of your old car’s oil change. Suddenly, you’re hit with feelings of concern and worry over this unexpected expense. You didn’t account for this in your calculations. This is an indirect cost, and it impacts your ROI just as much as the cost of the car itself. Not only are you disturbed by the sudden incursion of this cost, but you have a more negative perception towards your purchase.
This indirect cost is not only omitted when conducting ROI analysis of something like a property management software, it also is often only seen as a real impact on the level of use — the property manager level.
What does this mean? That while your company may perceive the Quantitative ROI of a new software initiative to be high due the numbers provided by finance, indirect costs that affect usage and efficiency may lead to a low perceived Qualitative ROI by the property manager using the software.
If the accounting features on your new software aren't as robust as the previous tools used by the property management team, you will likely see an indirect cost not only in the quality of your accounting data, but also in any tools you might need to adopt to make up for this discrepancy. If the property management software adopted doesn’t have a strong marketing automation built in, the cost to integrate another tool is an indirect cost. Even the choice to not integrate a marketing automation tool is an indirect cost, as it may impact the amount and quality of leads generated, therefore impacting marketing success.
Important Factors in Proving ROI to Your Team
Proving ROI to investors and company leaders is important, but it’s also important to prove ROI to your team. Your team can be a valuable asset in knowing whether a new tool like property management software is a good fit for your company, but this feedback may often come too late, after you’ve already been integrated to a new software and committed to a long term contract. Another concern is that teams are often resistant to change, and may be slow to warm up to a new tool that changes a familiar process, even if the new process is more efficient. Unused software costs companies up to $30 billion in 2015 alone, making this concern all too valid. So how do you get around these issues when choosing and proving the ROI of new software?
Understand your team’s pain points and needs.
Before embarking down the path of choosing new software, it’s important to consult the people who will use the software the most. By talking to the user, you can make sure you choose software that is not only inclusive to their wants and needs, but also offers a strong direct cost benefit. In choosing a software that is inclusive of features that address user concerns and eliminate indirect costs, you not only meet the needs of your employees, but save the costs of outside tool integrations down the road.
These tools may also offer other unexpected benefits, like increasing close ratios, and decreasing the time and man power necessary to renew a lease, all while meeting a specific need. In property management software, this can heavily impact the bottom line, as well as team morale.
The Quantitative and Qualitative Approach to ROI
By the inclusion of these factors — both the measurement of indirect costs, and the perceived ROI in components such as efficiency and process improvement, a more rounded approach to ROI is formed. In looking at ROI in this way, both quantitatively and qualitatively, a property management company is able to not only calculate ROI for the sake of financial integrity and projections, but is also able to estimate how changes made will affect and improve actual property management through use of software that meets perceived needs. By doing so, they ensure that the company and its clients alike benefit.
Simply put, there’s more to the ROI of your property management software than meets the eye. An open-minded approach to evaluating ROI will help your company make well-informed decisions for long term success and employee well being. Take a look at our resource below to compare your property management software features to expected ROI.