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Return on investment can be hard to measure - especially when it comes to all things HR. In other departments, the return can often be measured more easily.
So how can SMEs calculate the ROI of HR software - and quantify how much time they'll save on HR admin?
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What is ROI in HR?
ROI in HR stands for return on investment, in terms of human resources. Essentially, this metric assesses the impact of HR initiatives on an organisation.
Why is it important to calculate the ROI of HR?
The measurement of HR is based on people and it's difficult to quantify the value that they bring to your business (despite the value being considerable).
As a result, small businesses are often understandably nervous about investing money into an area of the business that will provide no tangible results - especially when every penny is precious.
Human resources is a part of the business that can be muddled with misconceptions. Unfortunately, HR can sometimes be overlooked as a function, with some even believing that HR leaders are less critical than other senior roles.
HR software & ROI
HR software is one of the biggest investments that a small business can make. Not because it is expensive, but because it changes the way the entire business operates. In a small business, managing HR can include taking care of leave and absence administration, updating information and documents and handling recruitment. It is hard to justify the value, but these are all administrative tasks that could be automated by HR software.
How do you calculate ROI for HR software?
To calculate the ROI for HR software, all you need to do is work out the money saved, divided by the total cost of the software, and then multiply this figure by 100.
In a recent survey, we found that customers saved an average of 3.8 hours each per week using Breathe to manage their HR admin.
To calculate the return on investment (ROI) of Breathe, our calculator works out the total amount you'll save divided by the total plan cost x 100.
Breathe's ROI calculator works its magic by calculating how much 3.8 hours of your time costs (when you enter your salary) and then how much this is worth over a year. Your plan cost is based on the number of employees in your SME, which provides your total cost saving.
Other ways of calculating ROI
In order to quantify the value of HR software, you need to properly calculate its ROI and you need to start with what you’re going to measure.
Time
Typically, in small businesses, managing HR will come down to one person. It won’t be their sole job, but something that has landed at their feet by default, and another ball they're expected to juggle. And, as managing the company’s HR function isn’t their main responsibility it is understandable that they'd like to save as much time as they can doing HR so they can focus on their core responsibilities. In these cases, time becomes an even more important metric to measure when calculating the ROI of HR software.
Cost of time
Time is money, and money is often something small businesses are short on. If you’re prepared to invest in an HR software you want to make sure that it’s going to be worth the cost. And, whilst an HR software isn’t going to be a revenue generator, the cost of the time that those managing HR will save following its implementation is valuable in measuring the ROI of HR software.
Productivity
This is time that can be better spent on other areas of the business. Understanding the value of the time that is saved is crucial to understanding the ROI of HR software. If the person managing HR can save themselves two hours a week by implementing an HR software to take care of the HR admin, that provides them with two hours that they can spend on something else within their role (instead of managing holiday on a spreadsheet, for example).
ROI for your small business
Breathe's ROI calculator can help you to calculate exactly how much money your SME would save by investing in Breathe's HR software.
Why not find out how much your small business could save? Take out a free 14-day trial today.
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