Making the decision to invest in a new WMS is a significant step that can have a major impact on your business operations, efficiency, growth and the bottom line. Calculating if and when the system will pay for itself is a key part of the decision. Ultimately you are trying to establish if savings and benefits will exceed the costs within a defined timeframe.

Working out the ROI appears daunting, here’s a structured approach to help support your decision-making process by working out the overall cost of introducing a new system and setting it against the benefits it will bring:

Calculating the total cost of ownership (TCO)

To work out the TCO you need to include all the upfront costs and the ongoing costs associated with the WMS. Typically they will be as follows

• Initial Costs:
  • Software licensing or subscription fees
  • Hardware (servers, handheld scanners, Wi-Fi upgrades etc.)
  • Implementation (integration, data migration, staff costs)
  • Training
• Ongoing Costs
  • Monthly subscription or support fees
  • Training (initial and ongoing)
  • Internal resources (staff time for maintenance, admin)
  • Future upgrades or expansion

Expected benefits

• Labour Cost Savings
  • Fewer staff needed due to automation
  • Optimised picking, packing, and put away routes can reduce labour hours significantly.
  • Typically a warehouse can save 10-30% in labour costs by implementing a new WMS
  • Improved scalability and economies of scale. The ability to handle higher increased number of orders without having to hire more staff
• Inventory Accuracy Improvements
  • Reduced write-offs due to shrinkage, misplacement, or overstocking
  • Typically accuracy rates can be improved to 90-99% utilising hand scanners with a new WMS
• Improved order accuracy and speed
  • Reduction in mis-picks, returns, and reshipments
  • Faster order processing increases customer satisfaction and sales
• Reduced shrinkage/loss
  • Improved tracking of stock and accountability
• Space Utilisation
  • Less warehouse space required results in lower storage costs and the need to acquire additional storage
• Better reporting and decision making
  • Improved planning and forecasting avoids stockouts and money tied up in overstocking
  • Reduction in stock write-offs of out of date stock
  • Realtime data enables better management of staff and resources

How to calculate the payback period for a WMS

To work out how long a WMS will take to provide a positive ROI you will need to work out the payback period based on the benefits and costs discussed above. Entering the figures into the formula below will provide you with the payback period.

Example:

Initial cost of ownership
Implementation, hardware, license and subscription

Cost for year 1 £98,000

Estimated annual benefits
Labour £20,000
Inventory accuracy £13,000
Reduction in errors £10,000
Increased order speed £12,000
Improved planning £10,000

Total annual benefit £65,000

Payback period = Initial cost of ownership / Estimated annual gains

Based on the above figures 98,000 / 65,000 = 1.5 years = (18 months payback)

Typical ROI Timeline

• Small to Medium Warehouses: 6–18 months

• Large, Complex Operations: 12–36 months (depending on customization and integration complexity)

In real life the calculation is more complex, some efficiencies and savings will take time to achieve, some will deliver a once-off reduction in costs while others deliver incremental improvements over several years as you refine your use of the new platform. Our spreadsheet calculator allows you to reflect the amount timing and size of the expected savings in a simple model you can tailor to your own situation.

Important factors to consider

Although most companies see a positive ROI from a new WMS it is not guaranteed. It is important to choose a system that can be tailored to your needs to gain the maximum benefits. Good planning and implementation is also essential.

There are a number of factors that affect how quickly you will receive a positive ROI.

Factors that speed up ROI

• High labour costs – The higher your labour cost, the more you save with automation and improved processes
• Frequent inventory or shipping errors – A new WMS such as OrderFlow will dramatically reduce errors in your warehouse
• Manual processes – If you are manually processing orders and using time consuming workarounds a new WMS will immediately bring efficiencies to your warehouse
• Seasonality or high order volumes – Faster order fulfilment pays off quickly
• Good implementation and user adoption – Efficient implementation and quick user adoption will speed up benefits and ROI

Factors that delay ROI

• Poor implementation – Bad data, misconfigured processes, or user resistance.
• Over-customisation – Complex setups can extend timelines and raise costs.
• Low order volume or small staff – Fewer savings to offset the cost quickly.
• Failure to use full capabilities – Underutilising the benefits of the WMS delays benefits.
• Integration delays – ERP, TMS, or e-commerce platform connections not ready.

We have developed a simple Return on Investment (ROI), a spreadsheet that provides a framework for calculating the ROI on your own WMS implementation. It shows typical costs and saving for a typical SME warehouse implementation but allows you to enter the project costs and expected savings to reflect your own situation. Please complete the form below if you would like to receive the spreadsheet.