Calculating the ROI for your internal Product

ROIs can help project and product manager to quantify the value of their investment for the company. For internal products, calculating a ROI can be challenging as there are no obvious revenue streams or paying customers.

ROI Formula

The ROI is the ratio between the net profit and the investment for a project or a product.

If the ROI of a project is 20%, this means that for every 1 $ that has been invested, the company sees 20 cents in profit.

ROI for Internal Products

In order to calculate the ROI, we can consider the organizational cost savings as the return or benefit.

Without your product, it may take your current customers more time to perform a certain task. There may be an alternative product they can use or no product at all. In order to determine the organizational savings, we have to look at the total organizational cost of the alternative solution compared to the scenario where your product is in place.

In the example above, you can see that your product is more expensive for the organization than the currently available alternative product. Customers however safe money when using your product in comparison to the alternative solution due to e.g. less hours to get a task done.