One of the most important things Pigment can bring to your organization is transparency, and that extends to the ROI of Pigment itself! We have a lot of customers asking how we recommend calculating the ROI of implementing and using Pigment, so in this article we will break down the different variables involved in that calculation and some tips for doing it effectively.
Disclaimer: the figures you’ll see below are based purely on market averages. The savings you realize will be dependent on a number of variables like salaries, model complexity, reporting requirements, and more. This article is intended as inspiration only, not as a financial claim.
But first, why should you calculate the ROI of your Pigment investment?
Other than wanting to make data-driven buying decisions and improving transparency, calculating the ROI of Pigment could have huge benefits for you and your team. This includes:
- Highlighting you and your team’s successes and efficiencies
- Showcase a successful implementation to key collaborators across the business, improving engagement with new processes
- Demonstrating value to other stakeholders, possibly unlocking additional use cases in Pigment
- Advocating for additional investment if needed
Additionally, having a live ROI figure can be helpful in many ways. Not only is it almost fully automated once set up, but it will also allow you to monitor and communicate the ROI on a recurring basis. It also helps promote adoption of Pigment within the organization, as your collaborators can see the impact their usage is having.
You may choose to calculate ROI in a more ad-hoc manner, but should you want a live ROI calculation, this article will help you understand how to implement that as well.
One of the most important things Pigment brings to your organization is transparency.
That’s why we’ve created a report giving more insight into all the ways Pigment can generate ROI and maximize the efficiency of your FP&A team. Click here to download your copy:
The ROI Calculation
There are a couple of different ways to calculate ROI, but the method we recommend is as follows:
| (Value - Cost) ━━━━━━━━ Cost | = | ROI |
ROI is typically communicated as a percentage, with a negative number indicating loss and a positive number indicating return.
The two variables in this calculation are Value and Cost, one of which is much simpler to calculate than the other.
Defining Cost
Defining the cost of Pigment is pretty straightforward. We recommend using the Total Contract Value (or TCV), which includes licenses and professional services. Post-renewal, you can choose to accrue a lifetime ROI or calculate it per contract, but the “before” figures you use will stay the same.
Some customers have debated whether to calculate the time it takes for their team to implement Pigment. Because we won’t be including time spent modeling new use cases or changing the model in the Time Savings section below, we don’t recommend including this data. However, if you have seen an increase in the time spent modeling within the relevant use case, you can certainly include this in the number.
Defining Value
Defining the value of Pigment is a less straightforward task, but we’ve done the best we can to help you do it comprehensively and accurately. To do this, we recommend breaking the value down into time savings and money-saving activities.
Time Savings
Please note that, for the sake of these figures, we will be using the market average of $616 per day per FTE.
One look at our customer stories says it all – the most tangible value Pigment brings is time savings. This is true not just for your core team, be it Finance, HR or RevOps, but also for any cross-functional collaborators you bring into Pigment.
To illustrate the potential time savings, let’s take a look at some of our customers and how they’re saving time on recurring processes:
Monthly closing
One of the most time-consuming processes for finance teams is monthly closing, from validating actuals to compiling reporting packages and analyzing the results. Ankorstore, a wholesale brand serving 30k brands and 300k retailers around the world, saves 7 FTE days per month on these processes compared to their previous Excel processes.
$51,744 savings per year
Data consolidation
Online marketplace ManoMano, Pigment’s first customer, used to spend a huge amount of time on consolidating data across multiple sources and formats. Since implementing Pigment, they’ve been able to save 4 FTE days per month on this activity.
$29,568 savings per year
Annual budget preparation
Tech company Gorgias has high expectations for their software, and Pigment has delivered! The team was able to save a full month (calculated as 20 FTE business days) on their annual budget preparation in Pigment.
$12,320 savings per year
Quarterly Scenario Planning
The operations team at Algolia leverages scenario planning in Pigment very frequently, saving 2.75 days each time compared to the complex process they used in spreadsheets. Assuming this process is a quarterly occurrence, that means 11 FTE days saved every year.
$6,776 savings per year
Mid-Year Reforecasting
Reforecasting doesn’t have to be a nightmare! European car rental company Virtuo has managed to take their reforecasting process from 3 weeks in spreadsheets to 2 FTE days in Pigment. Even with just one reforecast per year, that’s still an impressive time savings.
$8,008 savings per year
Ad-hoc Reporting Needs
The market average for ad-hoc reporting needs is approximately 14 FTE days per year. Based on customer feedback, a conservative time savings estimate would be 15%, or 7 FTE days per year.
$4,312 savings per year
Based on these figures, the Time Savings portion of the Value calculation could amount to around $113k per year per FTE!
The larger your team is and the more complex your processes were before Pigment, the more savings you’re likely to realize, so don’t forget to multiply that figure to account for multi-person teams and processes. For example, accounting for just one more person in each of these processes can create up to an additional $113k of value. For a team of 4 achieving the above time savings per FTE, the value would be as much as $452k!
Of course, knowing these time savings does require a “before” number. If you don’t have exact numbers, you can of course use estimates; just be as accurate as possible.
Also, don’t forget to account for:
- Automation of data mapping, validation and cleansing! The amount of admin required in spreadsheets and other solutions to keep your data clean is extensive, but much of this can be automated in Pigment.
- Time savings related to calculation times and report load times in Pigment! Most of our customers cite heavy, laggy spreadsheets as pain points they experienced before Pigment, and waiting for calculations and reports to process should be factored in.
- Time savings of other teams and individuals who are now using Pigment! For example, how much time is your Talent Acquisition (TA) team saving by using Pigment to track finance approval of hiring requests? How much faster is it for your Sales Leads to access performance reports in Pigment instead of Excel? And how much communication time is saved on both sides as a result?
Money-Saving Activities
Of course, time savings is only one side of the equation. In most instances, those time savings can lead directly to more money-saving activities, and while it’s harder to provide examples for these, the potential for impact is even greater.
Some possible money-saving activities to track include:
Burnout reduction
According to recent research, up to 85% of finance professionals are impacted by burnout. Sure, the time savings is working to reduce that burnout, but what other costs are you saving here?
- Sick days – use the market average of $616 per day (or your specific salary data) to calculate how much sick pay you’re saving by reducing the risk of burnout in your finance team
- Churn – Employees are 2.6 times more likely to change jobs if experiencing burnout, so use your churn rates to calculate HR and TA expenditure for the relevant teams. If you have a ramp-up cost calculated, include this too, since less churn means more fully ramped employees.
Scenario planning
We’ve covered time savings in regard to executing your scenario planning, but what about the impact of the scenario planning itself? Here are some examples of what Pigment’s scenario planning can facilitate (depending on the use cases you’ve implemented):
- Improved profit margins (according to Gartner, poor financial decisions can cost organizations more than 3% of their profits!) – this is especially true for Supply Chain use cases!
- Better compensation and hiring plans
- Better OPEX and CAPEX decisions
- Stronger buying power due to improved forecasts, creating further attributable ROI
Streamlining of Processes & Tools
Depending on what your processes looked like before Pigment versus what they look like now, you may be able to save money on other tools and processes. For example, some of our customers are able to reduce the number of Excel licenses required throughout the organization, because those users input into and get insights from Pigment directly.
How to implement an ROI calculation in Pigment
So now you have your Value and Cost variables defined, but how do you implement the calculation in Pigment?
While the exact blocks and formulas required will vary by use case, there are a number of best practices to make sure you get as accurate a number as possible:
When the data exists in Pigment
In some instances, especially for money-saving activities, you should have much of the data already in Pigment. This may include budget vs actuals accuracy from previous budgets, scenario planning data, and how key metrics have improved over time. These may need to be modeled in new ways for ROI calculation purposes, but connecting to your existing applications using shared blocks will get the data you need all into one place.
When the data doesn’t exist in Pigment
Especially for time savings data, it’s unlikely this exists in a meaningful way already. In this instance, it’s worth creating manual inputs for your team to complete in order to run this side of the calculation. Whether these are end user inputs based on actual experience or assumptions made by admins, they still serve as an important part of the ROI calculation.
This is a major addition to your current workflow for sure. However, it shouldn’t take too much time to populate once set up, and there are loads of benefits of having this data in Pigment and contributing to your ROI calculation, as discussed at the top of this article.
Where to share your ROI calculation
Technology expense is an important OPEX decision, so it’s important to highlight ROI to all the relevant decision makers. You can do this in a dashboard where the live ROI is displayed, with access granted to the Project Sponsor and key decision makers and team members. You could even add a walkthrough of the calculation if you wanted.
Importantly, you should also share your ROI calculation with your Pigment Customer Success Manager. They can help suggest additional time- or money-saving activities that can generate additional ROI!
Have you built out an ROI calculation for Pigment in Pigment? If so, we’d love to see how you did it! Let us know in the comments, or click here to book in a call with our Community Manager Benji to show us.