Calculating the ROI of document management systems

Calculating the ROI of document management systems

Document management systems (DMS) offer significant benefits to large and small businesses, we’ve even highlighted many of them in our previous blog. But you need a comprehensive return on investment (ROI) analysis to justify the cost of a DMS. There are many variables to consider, so grab a calculator and let’s get started.

Some of the places you’ll notice DMS returns is in office productivity.

  • Cloud storage - all your files are backed up online. Authorized users will be able to access the file from their own device, eliminating bottlenecks that arise from paper-based collaboration.
  • Document retrieval - DMS software has search functions which allow you to find documents in seconds by keying in specific keywords.
  • Data Capture - DMS software is equipped with smart capture features that make it easy to convert, organize, and file documents.

Physical costs

To calculate the cost savings from reduced physical storage needs, you must determine the total cost of a paper-based system. Add up how much you spend on the following every month:

  • File cabinets and printers
  • Property costs occupied by file cabinets
  • Offsite storage fees
  • Shipping documents to offsite facilities
  • Printing supply costs (e.g., ink, toner, etc.)
  • Paper expenses (one ream usually costs $3.30)

Write down the total, because those are your annual physical costs for a paper-based system, all of which can be eliminated from your budget with a proper DMS deployment.

Document access costs

Another place you'll cut costs is the time employees spend managing paper documents. Start by answering these three questions:

  • How many hours do employees spend retrieving or filing paper documents every day?
  • How many people handle documents?
  • What is the average salary of employees who handle paper documents?

Then, plug in your findings into this equation to get the total amount of time spent handling documents per month:

[Hours spent(retrieving/filing documents) x no. of employees] x average hourly salary x days in the month

For example, if you have 10 employees who spend an hour handling documents every day, their average salary is $15/hour, and there are 20 working days in the month, you’re spending $3,000/month on document handling -- [1x10] x 15 x 20.

Multiply your monthly physical and document access costs by 12 and add them together to find the total annual cost of your paper filing system. Write that number down because you’ll need it in a minute.

DMS savings

You need to calculate the annual cost of a DMS system and subtract it from the annual cost of your paper filing system to find the final ROI.

A DMS doesn't have physical costs, so you'll replace those with annual investment costs:

  • Software license fees
  • Hardware to run the DMS software
  • Implementation costs
  • IT support costs

Calculating document access costs is similar to a paper system but the number will be much lower. Document retrieval takes no more than 30 seconds, so the updated formula looks like this.

That’s your annual document costs in a DMS. Add it to you annual investment costs.

Now subtract your annual paper filing costs from your annual DMS costs -- that’s your ROI.

This should give you a clear-cut, defensible figure to use when making a business case for justifying a DMS investment. But it’s important to note that this calculation only measures the tangible returns. There are many more factors that can affect the ROI of DMS software, and calculating those is extremely complicated.

Fortunately, we have an ROI calculator to make things easier for you and help you make an informed decision quicker. But if you’re still undecided about DMS, why not sign up for a free PaperSave demo to see how our software can help your business?