Calculating the ROI of WMS

When introducing any new system or tool in business, one of the first questions from leadership is, “What’s the ROI?” From deciding on minor office perks like better coffee to major investments like a Warehouse Management System (WMS), ROI is the key metric that justifies the cost and drives decision-making.

In this article, we’ll provide a guide to calculating the ROI for WMS, covering all you need to assess the value of implementing this tool for your warehouse. Whether you’re aiming to make your operations smoother today or preparing for growth tomorrow, this framework will help you understand and demonstrate the ROI you can expect.

This guide will cover:

• Why understanding WMS ROI is crucial
• What research is necessary to assess the costs of implementing WMS
• Key areas of gains from WMS
• Bringing it all together to assess your final ROI

Why WMS ROI matters

A warehouse is not just about inventory, it’s about people, partners and processes. When calculating the ROI of implementing a WMS, it’s essential to think beyond basic monetary returns. A well-implemented WMS can offer financial, operational, and even cultural benefits for your team. This holistic approach provides a better foundation for understanding the ROI of a WMS in real-world scenarios.

Understanding the layers of WMS ROI

About 99% of the time you think of or discuss an ROI, it’s a monetary decision. The same is true for WMS in most respects, but ROI in warehouse management goes beyond straightforward calculations.

To accurately calculate ROI for a WMS, break it down into three primary categories:

1. Tangible benefits: Tangible benefits are those you can easily measure, such as reduced overhead costs, increased order accuracy, operational efficiency, and inventory accuracy.
2. Intangible benefits: These are harder to measure but still impactful. For example, automation in cycle counting may reduce worker strain and improve job satisfaction, even if exact productivity gains are challenging to quantify.
3. Supportive benefits: Certain benefits are measurable but vary widely, like improved compliance with partner standards or enhanced reporting features that can support new revenue streams. These benefits contribute to long-term potential.

TIP: Using a WMS ROI framework can help you quickly identify budget allocations, potential cost savings, and efficiency gains, which makes both the system choice and future software purchases more effective.

Check out our free WMS pricing guide for the latest pricing information from leading WMS vendors

Think of your ROI on these levels, and you’ll start to see value as soon as you learn the functionalities of the WMS you might select. When you begin to quantify them, you’ll often discover that you have more budget to invest elsewhere, can improve sales numbers, or are enhancing the work environment in ways that reduce turnover and attract high-caliber staff.

Take time to define and understand the ROI you expect and what you achieve will give you a better understanding of your vendor choice, change management practices, and can even make your next software purchase more comfortable and productive.

Forecasting the costs of implementing

Like most enterprise software, WMS vendors are notorious for hiding the total costs of the platform without you having to provide details or sitting through a consultation. That can seem frustrating, but it is a smart thing too.

Working with vendors through a lengthy RFP process that includes demos and data sharing is the best way to ensure you have a legitimate understanding of actual cost for the services your warehouse needs.

We have a set of items covering cost expectations that are worth reviewing:

• General pricing information covering size and delivery model
• WMS pricing guide based on information directly from vendors
• Commonly overlooked WMS costs
• And methodology to compare pricing

To avoid surprises, review all potential expenses thoroughly, including:

• Installation and integration with existing systems
• Training and go-live support
• Annual subscription or licensing fees
• Additional hardware or infrastructure investments

Lower-cost solutions may fit smaller warehouses with limited needs, while premium WMS options may offer more features, increasing your WMS ROI by generating greater long-term value.

Expected returns from WMS implementation

With your anticipated costs in hand, you can now forecast your WMS ROI based on expected benefits in specific areas. Here are the core areas where WMS solutions commonly deliver a positive ROI:

1. Warehouse and facility space optimization: Optimizing space reduces time and costs. A robust WMS allows for flexible picking lanes, batch or wave options, and can control layout to minimize honeycombing.
2. Inventory management: Inventory can be a major cost driver. A WMS can improve forecasting, reduce excess inventory, enhance stock rotation, and manage perishables effectively. Efficient inventory practices can also boost trust and transparency with partners.
3. Equipment utilization: Efficient use of equipment prolongs its life and reduces maintenance costs. A WMS can also automate reminders for servicing, further minimizing downtime.
4. Sales and service quality: Accurate orders and on-time shipments keep customers and partners satisfied. Enhanced service quality through better inventory management can boost customer loyalty and open doors to partnerships with large retailers that rely on high compliance standards.
5. Workforce productivity: Labor represents a significant warehouse cost. A WMS enhances workforce efficiency through automation, reducing training time, lowering error rates, and minimizing the need for rework, which over time leads to compounding productivity gains.
6. Compliance and requirements: Many WMS solutions integrate with ERP and other planning tools, which simplifies data sharing, meets service-level agreements, and ensures regulatory compliance. Meeting these standards can streamline payments, prevent costly mistakes and reduce penalties associated with non-compliance.

How to calculate ROI for WMS

To get a final figure for your ROI of implementing WMS, you’ll need to:

• Calculate total costs: Sum all the direct and indirect expenses, including initial purchase, implementation, and ongoing maintenance.
• Estimate gains: Quantify gains across key areas like labor efficiency, inventory management, space optimization, and service quality.
• Analyze net returns: Subtract costs from your estimated gains to determine net returns over a period (e.g., 5 years).

An effective WMS can cover its cost by reducing error rates, increasing repeat business, and even generating new customer orders. Each of these factors adds to the overall value and helps justify the investment.

Tools for WMS ROI calculation

Online ROI calculators provided by vendors like Snapfulfill and RF Pathways can help you estimate potential returns but also temper expectations. It helps you stay realistic about what gains you might see and not get caught up in marketing.

Final thoughts on WMS ROI

Calculating the ROI of a WMS isn’t a simple one-size-fits-all process. Each warehouse is unique, and the specific benefits of a WMS will depend on factors like warehouse layout, inventory complexity, and order volume. However, once implemented, many companies find that the savings and efficiencies gained are both significant and measurable. Over time, the system can pay for itself, making it a smart investment for long-term operational growth.

Further recommended reading:

• Areas with the highest ROI for WMS
• Five metrics to help you evaluate your WMS implementation
• What to include in your WMS RFP template