Laboratory owners frequently ask themselves if they should purchase a vendor's product based upon its price. Usually, laboratory owners view an impressive demonstration of a vendor's product which has many useful characteristics. Additionally, the laboratory employees appear to be eager to use the vendor's product. However, when it is time to determine whether or not the vendor's product will be financially advantageous to them, laboratory owners typically face a challenging decision.
The benefits of automating laboratory processes can be easily seen, however, it is much harder to justify the use of laboratory automation simply through emotional reasons alone. In order to automate laboratory processes, there are many parts that must come together (software, instrument interfaces, barcoding systems, digital workflows), and each part will require some sort of monetary commitment. Many positive changes will result from the implementation of laboratory automation. These positive changes will take place in the form of numerous small improvements; however, none of these improvements will be clearly listed as an individual line item on your financial statements. For this reason, a properly calculated return on investment (ROI) can provide so much benefit. An ROI calculation will turn "this seems like a good idea" into a numerical value that can be discussed, compared, and used to plan future activities.
This manual is designed for the use of lab owners, lab managers, and operations staff working within diagnostic and/or pathology laboratories. The content of this manual will define what laboratory automation is; what types of costs and benefits should be considered when conducting analysis; the process for determining ROI (Return on Investment) and Payback Period based on a step-by-step approach; and finally how to avoid typical mistakes which can lead to incorrect ROI estimates.
What Do We Mean by Laboratory Automation?
Automation is often viewed by many people as being used by diagnostic laboratories to automate processes through the use of robotic systems and conveyor lines. This is rarely the case, however, with the majority of small to medium-sized laboratories. Automation within these types of laboratories typically refers to the implementation of technology to decrease the amount of manual, repetitive work that must be completed. Below are several examples of how technology can be implemented to decrease the amount of manual, repetitive work completed in a laboratory setting:
- A laboratory management program (LMP) or a laboratory information Management system (LIMS) which automates registration, invoicing, tracking of samples and generation of reports.
- Analyzer integration that sends results directly into the system
- Barcode labelling and scanning for samples
- Auto-validation rules for routine results within defined ranges
- Digital report delivery through email or WhatsApp
- Automated inventory alerts and reorder levels
- Dashboards that replace manual reporting
Hardware automation (such as sample sorters and automated analyzers) in large labs.
Regardless of the type of product that is being evaluated for potential purchase (i.e., a single use pathology lab software application, a full laboratory information Management system (LIMS) solution, etc.), the same ROI methodology will be used to assess its value.
Why Calculating ROI Matters
- More effective decision-making: You now possess a method for evaluating alternatives against one another using consistent criteria, as opposed to making a judgment based solely on what you perceive when watching a product demonstration.
- Budget confidence: You know what to expect and when.
- Vendor Accountability: Clear objectives allow you to evaluate your systems performance.
- Staff buy-in: Showing the numbers helps teams understand why change is needed.
- When determining which processes should be automated during the current year, the highest return on investment (ROI) determines the order in which these projects are undertaken.
The Basic Formulas
Two simple measures cover most needs.
ROI (%) = (Total Benefits − Total Costs) ÷ Total Costs × 100
Payback period (months) = Total Costs ÷ Monthly Benefit
ROI tells you how much money you earn on every single rupee you invest in your project. Payback period tells you how long it will take to get all the money you invested in your project returned to you. These two measures should both be considered when deciding whether to pursue a project, because even though a project may have a great ROI, if it takes a long time to get your money back, then it probably isn't the best option for a laboratory that must bring in revenue as fast as possible.
Step 1: Count All the Costs
Many ROI calculations fail because costs are underestimated. Include everything.
One-time costs
- Software setup and implementation
- Analyzer interface or driver charges
- Hardware such as barcode printers, scanners, computers, or networking
- Data migration from your old system
- Initial staff training
- Any consulting or customisation
Recurring costs
- Subscription or license fees
- Support and maintenance
- Internet and cloud costs
- Additional user or branch charges
- Ongoing training for new staff
- Consumables such as barcode labels
Hidden costs
- Staff time during the transition
- Temporary dip in productivity while people learn
- Running old and new systems in parallel for a short time
Step 2: Identify the Benefits
There are two types of benefits. One type is when you can give it a price tag. The other type of benefit is just as real, but harder to assign a value to.
Direct, measurable benefits
- 1.Labour Time Savings: Less manual input into systems, less time spent checking over work again, quicker to register, and less paper used. To find the cost savings, multiply the number of hours saved by the total hourly cost of employees.
- 2.Billing Error Reduction: There are many different types of billing errors. These include missed recording of test results; incorrect application of billing rates; unauthorized discounts; and missing payments. Every percent of your monthly sales is important.
- 3.With better visibility into what is in your inventory, you should have less expired products to throw away and fewer emergency purchases of products.
- 4.Fewer Repeats/Reworks: A decrease in the error rate during transcription results in fewer repeated works, fewer corrections, and fewer reissues of reports.
- 5.Lower printing and courier costs: Digital reports replace paper and delivery.
- 6.Reduced overtime: Faster workflows during peak periods reduce extra shifts.
- 7.Higher capacity without extra hiring: The same team handles more samples.
Indirect benefits (harder to price, still valuable)
- Faster turnaround time and happier doctors and patients
- Better patient retention and referrals
- Improved audit readiness and accreditation support
- Better data for decisions
- Lower risk of serious errors
- Easier expansion to new branches
To find out how well your money is working for you, you can take a conservative view by including only those things that are easily quantified. All other advantages should be considered additional.
Step 3: Measure Your Baseline First
Before showing how much better something became after you implemented it, you first need to take a "before" photo. Document everything before making any changes:
- The length of time required by each person to complete their registration, input their data into a computer program, verify that data, and get a finished product (report).
- Number of billing corrections and missed charges per month
- Sample rejection and repeat rates
- Report corrections and complaints
- Turnaround time by test category
- Reagent expiry and wastage
- Overtime hours
- Printing and courier expenses
Even rough numbers collected over two to four weeks are far better than guesses.
Step 4: Calculate the Annual Benefit
For each of the benefits, estimate the annual value of that benefit based upon your company's actual performance. Be conservative when estimating values. It is important to avoid overstating benefits in order to prevent your business case from failing within six months of presentation.
A Worked Example
The figures below are illustrative only. Replace them with your own numbers.
A single-site diagnostic laboratory with monthly revenues of Rs. 800,000 has adopted laboratory management software with automated connections to analytical instruments and electronic reporting capabilities.
Year 1 costs
Item Cost (INR) Installation & Implementation 50,000 Yearly Subscription 60,000 Education & Transfer 10,000 Total First-Year Expenses 120,000
Annual benefits
| Benefit | Calculation | Annual Value (₹) |
|---|---|---|
| Saved Labor Time | 3 hours/day x 26 days x 12 months = 936 hours x ₹150/hour | 1,40,400 |
| Billing Leakage Reduction | 0.5% of ₹8,00,000 = ₹4,000/month x 12 | 48,000 |
| Reagent Wastage Reduction | ₹2,000/month x 12 | 24,000 |
| Repeats and Rework Reduction | ₹1,500/month x 12 | 18,000 |
| Total Annual Benefit | 2,30,400 |
Year 1 ROI
(2,30,400 − 1,20,000) ÷ 1,20,000 × 100 = 92%
Payback period
Monthly benefit = 2,30,400 ÷ 12 = ₹19,200
Payback = 1,20,000 ÷ 19,200 = about 6 months
Year 2 onwards
As the initial cost of setup and training is a one-time cost, only the subscription cost of ₹60,000 would be a recurring cost. ROI = (2,30,400 - 60,000) / 60,000 x 100 = approximately 284%, if we assume the benefits remain constant.
Adding those three items to the above examples will further support your position. Those three items are; decreased time in process (faster turnaround), higher rate of repeat customers (improved customer retention) and prepared for a review (ready for an audit).
Step 5: Account for Time and Risk
There are additional things to consider if you're about to make a significant purchase (e.g. automatic analyzer) or implement a multi-site project.
- Multi-year view: Compare total cost and total benefit over three to five years.
- Ramp up period: most likely benefits won't start day 1. assume the benefits will ramp up over the course of the first 2-3 months.
- Sensitivity Check: Redo the analysis using 25-30% less in benefits. If the results are favorable, then there is a high probability that the decision will be made to go ahead with the project.
- Your plan will need to take into account the price of replacement or upgraded equipment along with the estimated life span of that equipment.
- The use of net present value (NPV) analysis by large corporations is a way to consider the time value of money, but the simple application of return on investment (ROI) and payback analysis can be used as alternatives to evaluate projects for many small labs.
Where Multi-Branch Labs See Larger Returns
For networks of labs and collection centres, benefits multiply:
- Central visibility reduces time spent collecting reports from each branch
- Standard pricing and discount rules reduce leakage across locations
- Shared inventory visibility cuts duplicate stock and expiry waste
- Samples can be redirected to available capacity, protecting turnaround time
- Quality and compliance records stay consistent
In general, a software platform used to manage multi-branch diagnostic centers (with multiple sites) will produce faster results than single site operations because it significantly reduces the amount of time required to manually coordinate activities between branches. Please refer to our guide on how to improve the efficiency of operations in multi-branch diagnostic labs for more detailed information.
Common Mistakes When Calculating ROI
- The only cost you will pay is for the subscription itself. You will have to cover other expenses such as installation, training, and transition costs.
- Overestimating how much time is gained by converting all hours of the day to productive labor.
- Ignoring baseline data and relying on vendor claims
- Double counting the same benefit under two headings
- Treating soft benefits as certain and putting inflated values on them
- Forgetting ramp-up time and assuming full benefits from day one
- Not tracking results afterwards, so the calculation never gets verified
- Choosing by price alone, without considering support quality and fit
"If only my lowest projection was met, would I still want to buy this product/service?" is an appropriate question to ask yourself when considering buying a product/service.
Beyond the Numbers: What ROI Does Not Capture Fully
The environment in which a lab operates cannot be captured in a spreadsheet. A few of the benefits of operating in a more organized manner include: being able to spend less time working after hours in the final week of each month; having fewer arguments regarding data that was not entered into the system; less confusion surrounding the reception desk; and confidence from the physicians who are receiving your test results. All of these factors can help to establish whether or not a lab can continue to expand without sacrificing a positive working atmosphere for its employees.
The same way, risk management is another key aspect. One big reporting mistake can result in loss of more money than you would have spent on the software for an entire year — financially and by reputation. Therefore, ROI must be considered as a decision-making factor, but not as the sole factor.
Choosing Software with ROI in Mind
When comparing options, look at features that directly create savings:
- Barcode-based sample tracking and registration speed
- Analyzer integration and auto-validation support
- Billing controls, discount rules, and payment tracking
- Inventory alerts and expiry tracking
- Digital report delivery by email or WhatsApp
- Dashboards for TAT, revenue, and workload
- Multi-branch support and central reporting
- Transparent pricing with a clear three-year total cost
- Responsive support and reliable onboarding
For a full selection process of Laboratory Management Software for your Diagnostic Laboratory, please see our "Guide to Selecting Laboratory Management Software."
Where MargLabz Fits
MargLabz is an artificial intelligence (AI)-based lab operating system specifically designed for diagnostic/pathology laboratories, sample collection centers, and growing chains of laboratories. MargLabz combines all aspects of lab operations including patient registration, billing, sample tracking, validation, quality control (QC), inventory control (stock management), and reporting within one platform. MargLabz also provides a dashboard that shows order status, turn-around-time (TAT), revenue generated per billing method, and test volume by department. Since MargLabz charges as low as ₹999/month + GST, it keeps the cost portion of the return on investment (ROI) formula minimal and can shorten the payback time for smaller-to-medium-sized laboratories. As with any vendor, you will need to determine your ROI based on your current baseline, ask for a demo of the software, and evaluate the results of the implementation after a few months.
A Simple ROI Checklist
- Baseline measured for time, errors, billing leaks, TAT, and wastage
- All one-time, recurring, and hidden costs listed
- Direct benefits estimated with conservative assumptions
- Indirect benefits noted separately
- ROI and payback period calculated
- Results tested with benefits 25 to 30 percent lower
- Ramp-up time included
- Review date set to compare actual results with the estimate
Final Thoughts
The benefits of automation include saving time, protecting revenue, reducing errors and allowing employees to produce more with the same amount of effort. Just being a modern way to do things doesn't mean that an automated process has value. To find out whether a potential investment would result in these types of benefits you can perform a simple ROI analysis using your current baseline data and some conservative estimates.
Take some time to measure where you are now with your business practices, list all of your expenses, and make an educated estimate of how much money you may be able to save. Whether the outcome of this exercise is "yes," "no," or "I want to start small," you will have the confidence to make the correct decision rather than simply guessing.
MargLabz is a lab management system developed primarily for the use of diagnostic and pathology laboratories, collection centers, and those with multiple locations. MargLabz costs ₹999/month (GST extra), so if you're curious about how a contemporary lab platform can assist in tracking your data, then MargLabz may be just what you're looking for.