Insight Legal Chairman, Brian Welsh gives his thoughts on why measuring the Value of your new software product shouldn’t only be based on ROI.
“How do you measure the Value of your new software product?”
This is a question one of my LinkedIn contacts recently asked me, and it’s probably something that Managing Partners regularly ask themselves following a new software implementation.
What’s my answer?
Let me ask you a question first.
“What is Value?”
Most people would define Value as Return on Investment (ROI), but I believe it’s much more than that. I think Value also includes how much the new software enhances your processes, how much it helps to facilitate a better working environment, and how positively it improves the efficiency and welfare of the people working in your business.
Calculating ROI is usually very straightforward:
Revenue (minus) Cost of Software = Value
Operational Costs Saved (minus) Cost of Software = Value
Let’s say the average charge-out rate of your fee earners is £150 an hour, and the new software product I’m offering you costs £65 a month and contains enough efficiency to shave off five hours per working week per fee earner. (By the way, I realise your charge-out rate could be considerably more or possibly even less. Please don’t shoot me; it’s just a hypothetical example!)
In a four-week month, that’s twenty hours per fee earner saved, which means my £65 pm software product has just given you the capacity to do £3k more of billable work per month per fee earner, which is an extremely healthy ROI. I realise that means you’d need to have more work coming in to make up for the twenty hours each month the software has saved, and five hours a week might be a stretch. However, even if you only get the opportunity to bill for one hour of extra time per week per fee earner, you’ll still be billing an additional £600 a month, which, after deducting the £65 pm the new software costs you, is still a not-too-bad-at-all £535 pm ROI.
I appreciate this isn’t a one-size-fits-all strategy, especially if you purchase your software on a Capital & Licensing model. In the C&L case, your upfront cost will be a hefty chunk of your five-or-ten-year budget, so if you’re not anticipating any significant time gains, your ROI could look a bit non-existent. Similarly, pinning down the ROI of software that’s integrated into a much larger system can be tricky as well, although the maths exists for that too. Let me know if that’s the problem you’re facing and we can work through it together.
But, as I mentioned a few paragraphs ago, measuring the Value of your new software product shouldn’t only be based on ROI. Ask yourself these questions as well:
Will the new software enhance our processes?
In other words, will it improve upon your current workflow by streamlining processes, increasing efficiency/productivity, and/or helping you achieve better quality results?
Some things to consider are:
- Will the new software cut costs by automating routine tasks?
- Will it improve the effectiveness of your fee earners (or free up their time so they can take on additional work or focus on other jobs)?
- Will it increase overall productivity?
- Will it streamline your operations and accounts?
- Will it provide a better level of security?
- Will it facilitate more effective in-house and out-of-house communication between colleagues, clients, partners, suppliers, etc.?
Will the new software keep you compliant?
In other words, will the new software help to prevent breaches that could leave you liable to fines or interventions?
In this case, I’m talking more about regulation breaches rather than data breaches. It’s a very specific concern to the Legal industry, and having peace of mind that your new software will keep you on the right side of the rules and regulations is extremely important.
Breaching those rules can have dire consequences. If a breach by one of your staff results in the statutory intervention of a regulatory body such as the Solicitors Regulation Authority (SRA), it could effectively destroy your practice.
With that in mind:
- What price can you place on knowing that your new software will help prevent breaches that could cause fines, interventions, and potentially wipe out your law firm?
- Can you even put a price on knowing that ALL your staff are using the correct and most up-to-date templates for everything from your terms of business to your final bills?
- Even though you may believe you’re saving money by holding onto your existing system, what will happen if you fall foul of HMRC because you’re not compliant with their Making Tax Digital (MTD) initiative? On April 1, 2021, HMRC introduced a penalty system for MTD for VAT that applies to the first complete VAT return on or after that date. How do you measure the value of a new software product that could protect you from incurring those penalties?
You and your team are busy professionals, often operating under a tremendous amount of pressure. In Legal, there are so many rules and regulations surrounding client’s money and confidentiality that even the most diligent staff member could inadvertently make a disastrous error if your software isn’t up to the job.
At Insight Legal, our software immediately warns the user if they’re about to do something that would put them in a breach position.
How much value can you put on that?
Will the new software create a better working environment?
In a perfect world, your new software should make all its user’s lives easier and less stressful. At the very least, it should enable them to work more efficiently. Think about this:
- Will the new software be more technically reliable than your current software? (there are few things more frustrating than software that stops working when you need it most.)
- Will it be more comfortable to use? (this could be anything from having a more user-friendly layout to providing shortcuts that will reduce overall screen time.)
- Will it bring your team members closer together by improving communication between colleagues and departments?
- Will it enable its users to stay better organised, improve their time management, and encourage a better work/life balance?
- Will it help reduce paperwork, which won’t just make the desks and shelves tidier but be extremely good for the planet as well.
Will the new software improve the efficiency and welfare of the people working in your business?
See all of the above, and don’t forget to add ‘remote working’ to the list. The COVID pandemic has put remote working under the spotlight; if your new software gives users more flexible working opportunities, that’s a win-win for your business as well as your employee’s mental health (statistics have also shown that remote working can reduce absence and improve retention rates.)
So, to get back to the original question…
How do you measure the Value of your new software product?
That’s ultimately down to you.
If, despite everything I’ve talked about, your focus is still ROI, then that’s the measure you should use. But I hope I’ve given you enough reasons to think about ‘what value is’ in broader, more holistic terms. Or even try looking at it this way:
ROI isn’t just about financials. Even if the new software offers a negligible financial return (as in the Capital & Licensing model), you could still see a massive ROI in the way it improves processes, enhances the working environment, and contributes to the overall wellbeing of the people using it.
I hope that’s given you plenty to think about. If you’ve got any comments or questions, I’d love to hear them; firstname.lastname@example.org