When calculating ROI, be sure to annualize the savings

We all know that ROI = return on investment. When considering any investment, we should consider what the return on that investment will be. So if I’m going to spend $100,000 on a new database, for example, what kind of return can I expect on that $100,000?

That’s a good exercise to run through. But too often, ROI is often calculated against immediate savings, and annualized savings are overlooked. Here’s an example:

A client of mine invested $125,000 in a new association management system. As a result of this change, they were able to dramatically reduce the number of snail-mail pieces they sent out for dues renewals by sending email renewal messages and allowing members to renew online. The savings for one year of reduced snail-mail was $13,000. That’s not a huge number, compared to the $125,000 investment. However, over five years, the association will have saved $65,000 on printing and postage. Suddenly the ROI looks a lot better!

So when calculating savings that may occur as a result of some investment, be sure to take into consideration whether that is a one-time savings or savings that can be annualized for years to come.

About Wes Trochlil

For a quarter century, Wes has worked in and with dozens of associations and membership organizations throughout the US, ranging in size from zero staff (all-volunteer) to over 700. In that time Wes has provided a range of consulting services, from general consulting on data management issues to full-scale, association-wide selection and implementation of association management systems.

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