In the past, we’ve published several articles on our blog to help customers better understand the NetEqualizer’s potential return on investment (ROI). Obviously, we do this because we think we offer a compelling ROI proposition for most bandwidth-shaping decisions. Why? Primarily because we provide the benefits of bandwidth shaping at a a very low cost — both initially and even more so over time. (Click here for the NetEqualizer ROI calculator.)
But, we also want to provide potential customers with the questions that need to be considered before a product is purchased, regardless of whether or not the answers lead to the NetEqualizer. With that said, this article will break down these questions, addressing many issues that may not be obvious at first glance, but are nonetheless integral when determining what bandwidth shaping product is best for you.
First, let’s discuss basic ROI. As a simple example, if an investment cost $100, and if in one year that investment returned $120, the ROI is 20 percent. Simple enough. But what if your investment horizon is five years or longer? It gets a little more complicated, but suffice it to say you would perform a similar calculation for each year while adjusting these returns for time and cost.
The important point is that this technique is a well-known calculation for evaluating whether one thing is a better investment than another — be it bandwidth shaping products or real estate. Naturally and obviously the best financial decision will be determined by the greatest return for the smallest cost.
The hard part is determining what questions to ask in order to accurately determine the ROI. A missed cost or benefit here or there could dramatically alter the outcome, potentially leading to significant unforeseen losses.
For the remainder of this article, I’ll discuss many of the potential costs and returns associated with bandwidth shaping products, with some being more obscure than others. In the end, it should better prepare you to address the most important questions and issues and ultimately lead to a more accurate ROI assessment.
Let’s start by looking at the largest components of bandwidth shaping product “costs” and whether they are one-time or ongoing. We’ll then consider the returns.
- The initial cost of the tool
- This is a one-time cost.
- The cost of vendor support and license updates
- These are ongoing costs and include monthly and annual licenses for support, training, software updates, library updates, etc… The difference from vendor to vendor can be significant — especially over the long run.
- The cost of upgrades within the time horizon of the investment
- These upgrades can come in several different forms. For example, what does it cost to go from a 50Mbs tool to 100Mbs? Can your tool be upgraded, or do you have to buy a whole new tool? This can be a one-time cost or it can occur several times. It really depends on the growth of your network, but it’s usually inevitable for networks of any size.
- The internal (human) cost to support the tool
- For example, how many man hours do you have to spend to maintain the tool, to optimize it and to adapt it to your changing network? This could be a considerable “hidden” cost and it’s generally recurring. It also usually increases in time as the cost of salaries/benefits tend to go up. Because of that, this is a very important component that should be quantified for a good ROI analysis. Tools that require little or no ongoing maintenance will have a large advantage.
- Overall impact on the network
- Does the product add latency or other inefficiencies? Does it create any processing overhead and how much? If the answer is yes, costs such as these will constantly impact your network quality and add up over time.
- Savings from being able to delay or eliminate buying more bandwidth
- This could either be a one-time or ongoing return. Even delaying a bandwidth upgrade for six months or a year can be highly valuable.
- Savings from not losing existing revenue sources
- How many customers did you not lose because they did not get frustrated with their network/Internet service? This return is ongoing.
- Ability to generate new revenue
- How many new customers did you add because of a better-maintained network? Were you able to generate revenue by adding new higher-value services like a tiered rate structure? This will usually be an ongoing return.
- Savings from the ability eliminate or reduce the financial impact of unprofitable customers
- This is an ongoing savings. Can you convert an unprofitable customer to a profitable one by reducing their negative impact on the network? If not, and they walk, do you care?
- Avoidance of having to buy additional equipment
- Were you able to avoid having to “divide and conquer” by buying new access points, splitting VLANs, etc..? This can be a one-time or ongoing return.
- Savings in the cost of responding to technical support calls
- How much time was saved by not having to receive an irate customer call, research it and respond back? If this is something you typically deal with on a regular basis, the savings will add up every day, week or month this is avoided.
Overall, these issues are the basic financial components and questions that need to be quantified to make a good ROI analysis. For each business, and each tool, this type of analysis may yield a different answer, but it is important to note that over time there are many more items associated with ongoing costs/savings than those occurring only once. Thus, you must take great care to understand the impact of these for each tool, especially those issues that lead to costs that increase over time.
January 13, 2011 at 2:39 PM
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