Most ROI Calculators Are A Sham; 3 Red Flags To Look For

Technology buyers should be skeptical of vendor ROI claims. The same goes for online ROI calculators that purport to show how a new solution can pay for itself in the time it takes to read this blog. Skepticism is warranted, but there is real value in tools that can help you realistically estimate how a given technology or solution can impact your operations. With that in mind, here are three red flags indicating that a vendor’s “ROI calculator” is a sham.

1) The Math Doesn’t Add Up

You’d be surprised how many ROI calculators out there don’t use correct calculations. Perhaps the most frequent error we see is in the formula used to calculate productivity. Too many vendors have formulas that conflate percentage gain in productivity with percentage decrease in labor costs/requirements.

Here’s a simple way to check the math:

If you insert a 100% productivity gain into an accurate calculator, you should see a 50% decrease in labor costs. This makes sense, because essentially you’re saying that your team will be able to do twice as much work in the same amount of time. If workers can do twice as much, you need half as many of them. It all adds up.

If you insert a 100% productivity gain into a faulty calculator, it may indicate that you will reduce 100% of your labor costs, because it simply multiplies the number of workers by the productivity gain and subtracts that from the total number of workers. Next, insert a >100% productivity gain – the faulty calculator will suggest that your operation will require negative labor to complete the same amount of work. Seems like a sweet deal, but it’s literally too good to be true!

The error is less noticeable on smaller percentages, but it’s still there, inflating the effect of productivity gains on your labor costs.

2) The Potential Improvements are Too Generalized

Unfortunately, many ROI calculators suggest productivity or accuracy improvements without giving you the specific drivers behind those benefits. In some cases, they hard-code an expected outcome (e.g., future accuracy rate) into the calculator, assuming the result will be the same across all processes and operations.

In other cases, they give a wide range of percent improvement in an area (e.g., picking productivity) without providing context for what would cause you to fall on the high or low end of that range, or how exactly the technology will help you achieve those improvements.

Without the information needed to determine where you fall in the range, and without the ability to flex the inputs to the calculator to reflect your specific operations, how can you rely on the output?

Ultimately, no simple calculator is going to be able to provide detailed, operation-specific improvement estimates. That requires a much deeper dive into your process and current state. But some calculators do provide a good starting point for understanding where your gains will come from and how to make educated guesses around improvements.

3) It Claims to Provide “ROI” without Providing Cost

The definition of Return on Investment (ROI) is the ratio between the net profit and cost of investment resulting from an investment in some resource. Cost is a necessary input to a true ROI calculation. But so many vendors’ “ROI calculators” don’t mention cost at all.

It actually makes sense that they wouldn’t blindly post their costs on the internet. Often with complex technology solutions, there are dozens of variables that play into cost. So why do they call them “ROI Calculators” in the first place?

This misunderstanding of ROI is why at Lucas, instead of an online or downloadable ROI Calculator, we offer you a Savings Calculator.

No, we can’t give you detailed pricing information via a simple form, and we don’t pretend we can. But we can offer you an estimate of the value our solutions can provide to your picking operations – an estimate that is based on accurate math, includes the ability to adjust the inputs, and is backed up by context around what you should consider when determining those inputs.

Operational Assessments Provide Accurate ROI Estimates

Of course, you will always reach a point where you need to do a true ROI analysis, including pricing and a more detailed, deep-dive look at what gains are possible or probable. When you get to that point, we’ve got you covered, too.

We offer a cost-free, on-site Operations Assessment. The assessment is conducted by Lucas process experts who will spend time at your facility, walking through your current processes, observing your team, and discussing with you different ways in which our solution may help you improve your operations. Coming out of that visit, and with your input, we have enough information to provide you with a solid ROI estimate.

If this Operations Assessment sounds like something you’re interested in, please contact us today.

If you’re not quite ready for a full-blown ROI, but want to explore what value our solutions could bring to your distribution operations, check out our flexible, user-friendly savings calculator.