Calculating the Value of Expense Reporting Software
The expense report process is a notorious time-suck, revolving around manual work to submit, review, reimburse, and record expenses. Some tasks have been automated by software and new tools are being continuously developed to lessen the burden. By evaluating your current process, you have the potential to save yourself and company employees from a few headaches and a lot of wasted time.
However, it’s not efficient to be continuously evaluating software, so how do you know when it’s time?
- Are you currently using expense reporting software? No – time to start evaluating.
- When was the last time you did an evaluation of your software? More than a year ago – time to start evaluating. A lot has changed in the past year and you might be missing some great new features!
- Has your company experienced any major changes – exponential growth, acquiring a new company, new funding? Yes – time to start evaluating. The system you had before may no longer be the best fit for your new business needs.
- Are you dissatisfied with your current expense report solution? Yes – don’t prolong the pain, you deserve better. Start evaluating!
If you’re still on the fence about whether expense reporting software makes sense for your business or if you’re wondering whether it makes sense to consider switching, then understanding the return on investment of a solution is a good place to start.
Figuring out the ROI of expense reporting software is the same as any other return on investment calculation. First you need to figure out what your expense reports are currently costing and then you need to determine how much you would be spending under the new method. The biggest cost of processing expense reports is in manpower, so you’ll need to consider the cost of your employee’s time.
Consider the following when calculating the business cost of processing a single expense report:
- How many expense reports do you process each month?
- How many people on average submit expense reports each month?
- How many people review each expense report, how much time does it take each person and how much do you pay them to review each expense report?
- How much time is spent correcting errors with submitters?
- How much time is spent on manual data entry and bookkeeping activities for expenses?
- Do you pay any other additional fees or spend time on any other activities (processing reimbursements, bank fees or other software fees)?
If you’re interested in a general idea of ROI for expense reporting software and don’t want to spend the time analyzing internal costs, The Aberdeen Group published data on averages for expense report processing:
- average business cost to process a single expense report without expense report software is $20.65
- average of 1.5 expense reports submitted per employee per month
- average business cost to process a single expense report with expense report software is $7.50
Calculating the ROI of Expense Reporting Software
The basic ROI calculation is:
(Monthly Savings – Business Cost to Process Expense Reports)
(Business Cost to Process Expense Reports)
In order to find out your monthly savings, you’ll need to know what your current average cost per month is to process your expense reports. If you don’t have this data and want to use Aberdeen’s data, multiply the industry average to process a single expense report by the number of expense reports you process per month (again, you can use the industry average per employee and multiply it by how many employees you have if you don’t know).
Current Monthly Processing Costs
(current cost to process a single expense report)
(# of expense reports processed per month)
Next, figure out what it would cost with expense reporting software in place to process your monthly expenses. This will based around some assumptions of how much time you think you’ll save from your current way of doing things, or again, you can use Aberdeen’s data.
New Monthly Processing Costs
(new cost to process a single expense report)
(# of expense reports processed per month)
Subtract the new costs from the old costs to get an understanding of your monthly savings.
Finally, you can calculate how much of a return on investment an expense management solution would be by subtracting the new monthly processing costs from your savings and dividing the total by your new monthly cost. In other words what you want to know is, yes the costs are lower per month, but is the difference worth the effort?
Using Aberdeen’s data, the ROI calculation would look like this for a company with 150 employees:
[$20.65 x (150 x 1.5)] = Current Monthly Processing Costs of $4,646.25
[$7.50 x (150 x 1.5)] = New Monthly Processing Costs of $1,687.50
[$4,646.25] – [$1,687.50] = $2,958.75 in monthly savings
or an ROI of ($2,958.75 – $1,687.50) / $1,687.50 = 75%
This translates to saving almost $3,000 a month on processing costs: making the investment in a new system will return 175% of what you paid.
If you already have expense reporting software, then you understand the ROI of implementing a solution. However, when you reevaluate, you’ll want to use these same principles – is the system you have now returning a better or worse value than a new one might. Calculate the costs and time that you spend with your current solution and then stack it up against the possible time and cost savings of a new solution. The addition of features, capabilities or the type of system (batch reporting or real time transactions) will impact the business cost of the system. The other piece of the decision becomes about customer service and ease of use – something less quantifiable but just as important.