A software tool is worth buying when the hours it saves cost more than the tool does. Four numbers tell you whether that is true: how many people use the tool, what it costs for each user, how many hours each user saves in a week, and what one hour of that person's time costs your company.
The free SaaSSwitcher SaaS ROI calculator turns those four numbers into an ROI percentage, a net value for the year, and the hours saved. It needs no sign-up, and the answer is clear enough to share with your team.
This guide shows the math behind it, so you can check any tool by hand as well.
The four numbers you need
Pick one tool and one team. Write down these numbers.
- Users: how many people will use the tool.
- Cost for each user: the price one user pays each month.
- Hours saved: how many hours one user gets back in a week.
- Hourly rate: what one hour of that person's time costs the company.
Ask your finance team for the hourly rate they use in project budgets. A guess from a wage will push the result up or down without telling you which way.
The calculator has a fifth box for extra revenue each month. Leave it at zero unless a report ties real sales to the tool.
A worked example for 8 developers
These are example numbers, not the price of a real product.
A team of 8 developers is looking at a new tool. The tool costs $20 for each user, each month. Each developer saves 1.5 hours a week. One hour of developer time costs the company $50.
Step 1: the monthly cost.
The tool costs $20 for each user, each month. For 8 users, that is $160 a month.
Step 2: the hours saved.
Each user saves 1.5 hours a week. A month has about 4.33 weeks. For 8 users, that is 51.96 hours saved each month.
Step 3: What those hours are worth.
One hour costs the company $50. For 51.96 hours, that is $2,598 a month.
Step 4: the net value and the ROI.
The tool brings back $2,598 and costs $160. The team keeps $2,438 each month. Over 12 months, that is $29,256.
Now divide the $2,438 you keep by the $160 monthly cost. The answer is 15.24, so the ROI is 1,524%. The team also gets back about 624 hours in a year.
Check the example in the SaaSSwitcher SaaS ROI calculator
Open the SaaS ROI calculator and type in the same numbers: 8 users, $20 for each user, 1.5 hours saved each week, $50 an hour, and $0 of extra revenue. Choose monthly or yearly pricing to match how the vendor shows its price.
The page shows an ROI of 1,524% and a 16.2-times return on every $1 spent. It shows $29,256 of net value a year and 624 hours saved a year. The monthly boxes read $160 for cost, $2,598 for value, and $2,438 for net. You can switch the result between six currencies, and the page saves your numbers in your browser.
Cut the hours and test again
The hours saved are the number people trust too much. Lower it and see if the answer still holds.
At 1 hour saved for each user each week, the team saves 34.64 hours a month. That is worth $1,732 a month, so the net is $1,572 a month. The calculator shows an ROI of about 982% and $18,864 of net value a year.
At half an hour for each user each week, the net is $706 a month. The calculator shows an ROI of 441% and $8,472 of net value a year.
Half an hour is one third of the first guess. The tool still returns 5.4 times its cost.
Now find the point where the tool stops paying for itself. Divide the $160 monthly cost by the $50 hourly rate. The answer is 3.2 hours a month for the whole team.
For 8 users, that is 0.4 hours each, or about 5.5 minutes for each user each week. A tool that cannot save every user 5.5 minutes in a week is a poor buy at this price.
Four ways the number can mislead you
Seats nobody uses. The SaaSSwitcher SaaS ROI calculator uses one user count for both the cost and the savings. Say you buy 10 seats at $20 and only 8 people will use them. The monthly bill is $200. Divide $200 by 8 active users and enter $25 as the cost for each user.
Saved time that goes nowhere. An hour only counts when the person spends it on work the company values. If you doubt that, lower the hours, as in the test above.
Setup time. Say each of the 8 developers spends 2 hours on setup. That is 16 hours, or $800 at $50 an hour. Add the $800 to the first year's cost. The cost for the year becomes $2,720 instead of $1,920, and the net becomes $28,456. The first year ROI falls from 1,524% to 1,046%.
Guessed revenue. A number typed into the extra revenue box can swing the result a lot. Use it only when you can point to a report.
When ROI is the wrong test
Some tools do not save time. Backups, security scanning, and audit logs protect you from a loss. For those, compare the price with the cost of the loss you want to avoid.
When two tools do the same job, run the SaaSSwitcher SaaS ROI calculator once for each and compare the net value for a year. Then compare their features before you decide.
Buy the tool when the net value stays above zero after you cut the hours in half and add the setup time. If it does not, keep looking.
