Payback is the most fundamental form of financial analysis. It translates as, “How long before my investment pays for itself?” It’s never appropriate for evaluating long-term investments, real estate for instance. It ignores the time value of money, but payback period computations are great for making decisions on simple purchases driving rapid results. We expect our customers to earn their investment in our document assembly software back in short order, typically a matter of one to four weeks.
It’s a dirty little secret
Most firms’ new technology either under-performs or fails entirely. The cause has been repeatedly studied and is certain, but has not been well-shared. The reason: firms, especially professional services firms, concentrate way too much on tech and way too little on the people and processes driving the tech.
An economist looking at our document assembly software—PRO, Dox, and DB—would expect that the differences in price would drive substantially different payback periods, with the lowest price producing the quickest payback. Such is not the case with TheFormTool software. Document automation from TheFormTool creates so much efficiency so rapidly with prices so low that price loses its role as a prime differentiator. Instead speed drives the curve.
A Surprise Discovery
Individual payback periods primarily vary based on the customer’s size. Smaller firms and companies report paybacks of less than one week, no matter which program is purchased, while the largest firms stand report payback periods of less than one month. Our working theory is that variances are much more sensitive to deployment speed than price. Small firm structures are small and straightforward, the purchase and deployment commitments often come from the same person who will actually use the software. “Turning the ship” is almost instantaneous. These firms often test the document assembly program and then double- or triple-down with additional purchases within a few weeks, after the original investment has become profitable.
Larger firms take each step more slowly
Very frequently an individual will make an initial purchase. Others learn of the results and the firm initiates a study, evaluation, or test. While the pre-purchase time-frame has no effect on the payback analysis, the same pattern of time-expenditure typically spins the post-purchase clocks at a similar speed. In large firms the forms creation effort gets a varied commitment up and down the organization. Critically, deployment is delayed for one or both of two reasons, training and library development.
In small firms, nearly everyone might be involved in creating intelligent forms, learning as they go in a educational process that is accelerated by ease of use. Larger firms can’t afford to have the whole team involved in building forms. Those who aren’t involved likely outnumber those who are, and they’ll need an hour or two of training. Team scheduling will result in delay.
We see large firms waiting to deploy until they’ve created a critical mass of forms, perhaps a matter of weeks. Smaller firms, on the other hand, start using their forms within minutes of development. One approach results in a return on the investment within a few days (we’ve seen successful same-day deployments), the other within a few weeks.
In either event, whether it’s a small firm deploying five copies of PRO for less than $500 and earning that back the first week and every week thereafter; or a large firm using hundreds of copies of DB and DB User and deploying 50 forms firm-wide three weeks later, the results are enough to drive the Payback Period to a matter of days.
In this particular case Payback is actually more useful than the more sophisticated tools such as Discounted Cash Flow, Net Present Value, or Return on Investment. Those tools are great for many situations but when used to analyze purchases of our software they return such large values as to be less valuable than the old standby, Payback Period