This morning Doug Mohney at FierceVoIP dropped some great observations from last weeks VoiceCon show. The one observation that struck a cord here at VoIP Supply was the six month ROI (Return on Investment) businesses want on the purchase of a VoIP system.

A year ago businesses were happy with an 18 month ROI. With new financial pressures (thanks to the economy) an 18 month ROI is no longer realistic for them.

But is a six month ROI realistic either?

Well, let’s take a look.

Sample small business

Acme corp wants to switch to VoIP. They are a very basic business, with basic needs. Here’s their stats:

  • Number of seats – 20
  • Number of phone lines – 20
  • Data connection – T1
  • Monthly cost per phone line – $75
  • Monthly long distance cost – $500
  • Total voice bill – $2,000 per month

Now these numbers are rough estimates for an average company of this size. It’s keep simple and straight forward for a reason.

Acme Corp wants to replace their existing phone system with a VoIP phone system and use VoIP lines for their local and long distance calling.

Sample bare bone VoIP system

Let’s assume that in this situation Acme Corp really is a basic company and just needs a basic solution. They’ve also have existing networking infrastructure to accommodate a VoIP system and their T1 has enough bandwidth to handle VoIP calls.

  • SwitchVox SMB AA300 – $5,959.00
    • 20 silver licenses
    • 45 concurrent calls
    • T1 card
  • (20) Polycom IP501 VoIP phones – $3,299.00
  • Configuration and installation – $1,000.00
  • Total VoIP system cost – $10,258.00

Again, this is a bare bones on average system. Actual sell prices might vary.

Achieving a six month ROI

In order for this sample business to achieve a positive ROI in six months, they’d have to save a total of $10,258.00 ($2,051.60) in the first five months of having their VoIP system. Since the business only spends $2,000 per month on calling a six month ROI isn’t feasible.

This business will see an ROI within eight months, which isn’t bad. Then again this whole example makes a lot of assumptions.

What’s realistic?

Given the above example it is realistic that an average business, with average needs, can see a positive ROI on a VoIP system investment within eight months. Six months is a stretch.

For businesses and VoIP system vendors it is likely that delivering a positive ROI within six months is only possible through something other then pure cost savings. Be that via increased productivity, operational efficiency or something else that comes with the integration of a VoIP system.

Bottom line here is that a six month ROI is tough to achieve…making it time for folks on both sides to get a little more creative when it comes to ROI.

Discussion

7 Comments
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  1. Leasing the VoIP solution over 36 or 60 months might provide positive cash flow for this customer in the first month. A true lease would also preserve cash and not tie up lines of credit, since it is off balance sheet. Unfortunately, the approval process is a bit of a hassle right now with the credit crisis and the state of the economy. If the company in question has been around for two years, though, it’s not impossible.

    Reply
  2. Garrett Smith

    @ Sean

    I agree 100%. If this system was leased it would be a whole different scenario.

    But as you stated lease financing isn’t what it once was.

    Again, six month ROI is achievable…but it’s not easy.

    Reply
  3. This figures are even better for certain parts of Europe where PSTN connectivity are even more expensive than in the US.

    It is also worth adding to your figures that often there is a service contract involved with the phone system (or did you put that into the price per line per month?).

    Reply
  4. Garrett Smith

    @ Ruben

    Great point.

    Examples are tough as there are so many different variables :)

    I did include the basic support licensing in the cost of the SwitchVox appliance.

    Reply
  5. Garrett,

    I like the example, but there’s no way the T1 will be adequate for both web and voice use unless they are very light users. On the other hand, it’s not too hard to add non-guaranteed bandwidth in the form of DSL, cable, or fiber (whatever’s available) to give a better web experience, defaulting back to the T1 if the service goes down. This would probably extend the payback by a couple months or more, but arguably will improve the overall experience, too (which is worth something). I just think it makes the analysis a little more realistic.

    Curt

    Reply
  6. Garrett Smith

    @Curt

    I did oversubscribe in the example. Most firms of this size would likely need (2) T1′s.

    I do like your point of adding additional “non-guaranteed” bandwidth streams for fail-over and agree that its benefits out-weight the costs.

    This just further goes to show how hard it can be to hit a six month ROI.

    Reply
  7. I cannot recall one occasion where I have had a client conversation regarding a six month VoIP system ROI plan! An interesting concept nevertheless!! I agree with Garrett, If this system was leased it would be a whole different scenario.

    Reply