An ERP calculation can show −50% ROI in year one and a 30-month payback with the very same inputs. How? The percentage and the period answer different questions. Understanding the difference helps you compare proposals and explain the decision to management instead of relying on an attractive headline figure.
We will work through a SAR example and separate cash savings from time released for your team. To see where an Odoo implementation starts in your business, explore the ToDoOps solution on our home page.
How does comparison and measurement help?
The UK Treasury’s Green Book (updated 5 February 2026) compares the costs, benefits and risks of alternatives and plans how the outcome will be evaluated from the start (reference). Its setting is UK public investment, so we take only the principle: compare alternatives on the same basis and decide how you will measure before you begin. The formulas below are our own simple method.
What is the first-year ROI formula?
This is the form used in our central calculator:
- First-year cost = initial investment + annual operating cost
- First-year net = annual cash benefit − annual operating cost − initial investment
- First-year ROI = first-year net ÷ total first-year cost × 100
The denominator must be positive and complete; if the cost is zero, no ratio results. When comparing two proposals, note that some parties divide by the initial investment alone, so confirm both figures use the same denominator.
A worked example
The figures are hypothetical. They are not ToDoOps prices, a field study or a promised return: initial investment SAR 40,000, annual cash benefit SAR 24,000, annual operating cost SAR 8,000.
- First-year cost: 40,000 + 8,000 = SAR 48,000
- First-year net: 24,000 − 8,000 − 40,000 = −SAR 24,000
- ROI: −24,000 ÷ 48,000 × 100 = −50%
The figure is negative because the first year carries the whole initial investment. To judge the project, also consider how long benefits will continue and the net cash over that period. We can now calculate payback for this example.
How do you calculate payback?
- Annual net cash = annual benefit − annual operating cost = 24,000 − 8,000 = SAR 16,000
- Monthly = 16,000 ÷ 12 ≈ SAR 1,333.33
- Payback = 40,000 ÷ 16,000 × 12 = 30 months
This assumes the net cash is positive, spread evenly, and that the inputs continue. If net cash is zero or negative, there is no finite payback. A negative first-year ROI and a 30-month payback do not conflict; they measure different horizons. If benefits arrive late, build a monthly cumulative cash-flow schedule instead of assuming benefits from day one.
How does the figure change with the horizon?
With the same inputs you can show a three-year horizon:
| Horizon | Cost | Benefit | Net | Simple ROI |
|---|---|---|---|---|
| Year 1 | 48,000 | 24,000 | −24,000 | −50% |
| 3 years | 64,000 | 72,000 | 8,000 | 12.5% |
Three-year cost = 40,000 + (8,000 × 3) = 64,000, and benefit = 24,000 × 3 = 72,000. This is a simplified calculation without financing, discounting, tax or the timing of benefits, and it is not an expected result for any client. What it shows is that the horizon changes the picture, so always state the horizon next to the percentage.
How do you value the time a system saves?
One source of value is time released for your team. A hypothetical example: 4 employees × 2 hours a week × 52 weeks = 416 hours a year. At a hypothetical internal rate of SAR 50 an hour, that is SAR 20,800.
This figure is the value of working capacity that can be reused, and it is a real benefit to the business. It enters the cash benefit only when a specific extra cash expense is removed because of it, such as overtime or an outside contractor. If you do count it, do not count the same hours again under error reduction. Show time value separately from cash, and explain where the team will use that capacity: collections, purchasing reviews or serving more orders. Management can then see the operating benefit alongside the financial effect.
What about additional revenue?
Additional revenue is not additional profit. If the benefit is a sales increase, measure its effect through margin rather than revenue, and do not add both.
How do you assemble Odoo’s cost from a proposal?
Take the cost table from the proposal documents, not from memory. Odoo’s pricing and service-pack pages indicate that licences are priced by users and plan, and that implementation services have a separate scope (reference). In practice, keep separate lines for licences, the application and implementation, hosting, and training and support, as the proposal sets them out. If an item such as training is already included in implementation, do not add it a second time.
Where does the benefit actually come from?
Benefit appears when processes connect: a sales order becomes a delivery and then an invoice without re-entry. For a practical view, try Odoo interactively, a guided simulation with sample data for a sales and inventory path. Watch quantities and statuses move through the steps, then identify the manual follow-up you would like to reduce in your own business.
How do you compare two proposals?
Use the ToDoOps implementation-cost and savings calculators as a starting point, then check each input with your team. Figures drawn from your own operation provide the basis for a useful comparison.
- Align currency and period, and use the renewal price after any introductory offer.
- Confirm each proposal defines cost and denominator the same way.
- Ask each party to explain the source of every benefit and who owns verifying it.
- Put the first-year ratio, the payback and a three-year horizon in front of management together.
After implementation, compare reality with a baseline and a suitable observation period, and keep the original scenario’s assumptions unchanged so the difference is honest. To see how to gather the inputs, the business-case guide covers building the investment decision itself.
Frequently asked questions
Must ROI be positive in the first year?
It can be negative, as in the example. Review net benefit over your planned horizon, payback and the cash the project needs before approving the decision.
When should I use payback and when ROI?
Payback answers how long; ROI answers how large the net is against cost over a given horizon. Use both.
Should I count staff time as a cash saving?
Count it as working-capacity value, and add it to cash only when a specific cash expense is removed.
References
HM Treasury, The Green Book 2026, updated 5 February 2026: guidance on comparing costs, benefits and risks and planning evaluation.
Odoo: pricing and service-pack pages (reviewed 27 October 2026): licence scope by user and plan, with a separate scope for implementation services.
Conclusion: start from your own numbers
A return that you and your accountant both understand is better than an attractive percentage whose origin you cannot trace. Try the calculators for an initial estimate of implementation cost and savings; they are not a final quotation. Then start at the home page to see the solution, and contact ToDoOps so we can review the inputs and arrange the first step together.