How to Calculate the ROI of Your Mortgage Software

When LOs spend time and money implementing changes to their workflow, they expect an improvement in one area or another. Being able to calculate the positive or negative return you are getting on your mortgage software investment is critical to understanding which systems are actually helping your business, and which are not.

Benchmarking performance indicators

One key to calculating the ROI of your mortgage software is to take measure-of-performance indicators prior to implementing any changes to your workflow. Establishing benchmarks allows for an apples-to-apples comparison of before and after performance. Example benchmarks include loans closed per year, days to close, staff hours per loan file, or loans produced per team member. This also can include any other significant metric you feel best demonstrates the change you desire. For example, do you want to close more loans or work fewer hours?

There are a couple of fundamental guidelines for calculating the ROI of your mortgage software. The first is that you can never have a large enough dataset. The more data you have over a longer period of time, the more accurate your benchmarks. The second is to only make one process change at a time. This makes it possible to attribute any variation in your performance metrics to the specific change that was made.

Calculating Mortgage Software ROI

In order to calculate return, you will need to convert your benchmarks into the same unit used to measure the cost of the software (e.g. dollars). If the benchmark you’re using to calculate ROI is related to hours saved, you’ll need to determine what the dollar value of an hour is. Similarly, if you want to calculate your return based on the number of loans you’re closing, each loan unit should be assigned a value equal to your average per-loan volume.

The actual equation to calculate ROI is quite simple. If you’ve worked your way through establishing benchmarks, you’ve already done the hard work! First, determine the value gained or lost by comparing the data points of your benchmarks. For example:

Data point after change (#loans/month x avg $ net loan unit revenue) – Data point before change (#loans/month x avg $ net loan unit revenue) = $ Net Loan Revenue Gain/Loss

Continue to get more precise by repeating that comparison across additional “non-competitive” metrics. If you’re producing more loans AND working less overall hours at the same time, those are both gains/losses that can be combined to determine your overall change.

Next, determine the cost associated with the mortgage software implementation. If you are examining your gains and losses as a monthly comparison (versus annual), make sure the cost you are calculating is in the same terms. Many times this will simply be your monthly subscription cost, but can also include setup fees, training fees, and various other associated costs.

Use the following formula to input your data and determine your percent return on your investment over the time interval. Make sure to be careful to ensure all data points are in relative terms.

($Gain – $Cost) / $Cost

This ROI calculation is extremely useful in understanding the effectiveness of changes to your workflow, even beyond the application to mortgage software. Follow the same principles discussed here in order to measure the return on investment from any single change you make to your process.