How to calculate the ROI of a WMS implementation

When finance teams or board members ask for numbers, typically, they’re looking for more than woolly, waffly benefits. They want to know if a WMS will be able to deliver tangible returns in the warehouse. Which is where it gets a bit tricky, because calculating ROI for a WMS isn’t generic. And however you choose to calculate that ROI, it needs to reflect your operation’s realities, with honest data that will build confidence in your business case.

The first step is to understand where you are now. 

Yes, it sounds obvious, but you’d be surprised how many companies try to forecast future savings without knowing details of their current performance. So, start by gathering data on your picking accuracy. How often are items picked or shipped incorrectly? Each error has a cost – whether that’s returns processing, replacement shipping, time spent by your customer service team, or potential lost business if your customer decides not to come back.

Then look at your productivity rates. 

How many orders or lines per hour can (and does) each picker handle? If you’re relying on overtime to meet daily targets, that cost should be included. And don’t forget to factor in agency labour (and the time spent training them), especially during peak seasons, because this is often where improvements from a WMS can bring you significant savings.

Inventory accuracy is another mission critical area. 

Work out how many discrepancies you find each week or month, and the direct financial impact that they represent. There are the immediate costs of stock write-offs and emergency replenishments, but you also need to consider the risk of lost sales if customers can’t place an order because you’re not sure of stock levels.

Then look at other areas of the warehouse

How sure are you that the Returns you receive are in a fit state to be re-sold? Actually… how sure are you that what you’re receiving back in is what you sent out in the first place?

How much of the inventory you receive is what you ordered? How much of that is fit for purpose? Can you quantify how each one of your vendors is performing or are you having to go on faith?

Once you have your baseline…

you can start forecasting the impact of a WMS. For example, if your current picking accuracy is around 95% and you know that scanning validation and system-guided picks could take this to above 99%, work out how many errors this would remove annually. Then multiply that by the average cost per error. It’s usually an eye-opening figure.

Productivity gains often come from small changes that add up fast. 

Smarter picking routes, better putaway recommendations, and reduced admin time can lift pick rates by 10–20%, and sometimes even more, depending on how much experience your staff have. That increase might mean you can process higher order volumes without adding more staff, or it might reduce reliance on overtime and agency workers to meet peaks.

Inventory holding costs are another area where savings can often be found. 

Improved accuracy often means safety stock levels can be reduced, freeing up working capital that’s been tied up in inventory. This isn’t always immediate, but over time, more precise stock data builds the kind of confidence needed to hold leaner stock profiles without risking availability.

More Space Available

For warehouses that are considering expansion because space feels full, it’s worth factoring in the benefits of better putaway and location management. A WMS can unlock underused space, potentially delaying or altogether avoiding the need for external storage or additional warehouse facilities, something that represents a major capital saving.

Rework

Rework is another hidden cost that rarely appears on a P&L line item, but absolutely eats away at productivity. Time that your staff are spending correcting pick errors, searching for missing stock, or investigating discrepancies all comes at a cost. Estimate the hours spent on these tasks each week and then multiply that by your average hourly wage cost to show the potential savings if that rework was e.g. to be cut in half.

It’s important to set these potential benefits against the full cost of implementation. 

And that means looking at software licence or subscription costs, project management and configuration fees, hardware like scanners and printers, training costs, and the inevitable short-term productivity dip while your team adapts to the new system. Underestimating these costs risks undermining your case later on, so it’s always better to be conservative and thorough. Or at least, we think so, which is why we’ll tell you what it’s going to take up front, rather than make big promises and then send big, unexpected bills later on.

Calculating your ROI then becomes a matter of comparing total projected savings with total costs over an appropriate timeframe. 

If your total implementation and ongoing costs are £250,000 and your forecast savings over three years are £450,000, the net benefit is £200,000. And top tip: presenting ROI in both percentage terms and payback period will give decision-makers a clear view of when benefits outweigh costs.

Alongside these financial measures, remember the wider operational impact. Faster, more accurate fulfilment is only going to improve customer satisfaction and loyalty. Real-time data reduces firefighting and stress for warehouse managers and it allows for pro-active rather than re-active decisions – and they’re always cheaper.

And a good WMS builds operational resilience, because knowledge and process control are no longer dependent on a few experienced staff members.

These last few benefits are harder to quantify, but they matter just as much when it comes to the decision to invest.

If you’d like to have a no-obligation chat about what a modern WMS like Dispatcher WMS could offer your operation, we’re ready when you are. Get in touch today: info@socius24.com