Calculating the ROI of Localization Is No Mean Feat
In this article we start with the meaning of the term Return On Investment (ROI) and its formula, and investigate its applicability to localization. Our main objective is to help you to fully evaluate the economic results of your localization investments.
What Is The Return On Investment & How Can You Calculate It?
As with any financial topic, grabbing the basics is essential to understand what a ROI really implies, so we better start with a bit of theory.
Return on Investment (ROI) is an indication of the profitability of the capital invested by a company. It is nothing more than the ratio between the operating result and the capital invested during a specific period.
Calculating ROI is simple: just divide the overall operating result achieved in a certain period by the average capital invested in the same period.
ROI = (Operating Result/Capital Invested) x 100
As we said above, it’s a simple calculation, but not straightforward. In fact, when we talk about investment, we must remember that this refers to the resources used for a specific project/activity, including the human resources. But the hardest part of ROI calculation consists in identifying each and every component required for that project/activity and the associated resources.
Assessing The ROI Of Localization
Getting ROI out of your localization effort depends first and foremost on the returns. If you invest in this and you do everything right, there is still a risk that you don’t get the returns you need.
Calculating Your Risks
Localization is a tool to help you open a new market and is not a risk in and of itself. If you use a hammer to build a house, the house might have a risk of falling apart, but you wouldn’t say the hammer was a risk.
The risks are mostly related to your success in that new market, and they will ultimately determine what your returns are.
- Can you sell your product or service in the new market?
- Will people want to buy it?
- Are you ready to support this product or service?
- Are you aware of the total size of the required investment?
It might be the case that you are investing in several markets or choosing one market among several suitors. Here are a few starter criteria:
- Local markets. Are there local markets you can serve that require adding a new language to your operations?
- World languages. Many organizations, especially digital products or software, start with the FIGS languages. They cover more than just the originating countries, and you’ll be able to deliver your product to roughly 80% of the global population. Think of the Francophone, Anglophone and Spanish-speaking countries.
- Regulations, standards, trade issues. It goes without saying that you may have to make significant changes to your product or jump through several hoops to sell it in any given locale. If you decide to localize your product into Chinese, all else being equal, you have the same chances in terms of return as the FIGs population put together. In practice, though, you could end up investing for Chinese the same amount necessary for the FIGs languages put together. When it comes to localization into Chinese, linguistic, cultural and legal issues are so different that a profound intervention may be necessary.
You may not have great data for predicting the ROI of a localization decision, but there is usually some data available that may help you. Here are some examples:
- We have heard from games localizers that they look at their data about the popularity of their games in different markets before they decide where to localize.
- Software companies often check the location of their users before choosing to localize for a market.
- Different organizations check their website traffic before they decide where to localize.
- Sometimes, you can tease out the data. If you are translating a book for the Portuguese market, can you find data about similar books or the subject matter? Perhaps Google search popularity for the subject matter in Portugal to see if people are interested in that subject, or traffic information for sites in that field.
Investment in the product or service required for this new market
Calculating the size of your investment involves several business decisions that will ultimately decide the size of your investment.
Here are some examples:
- Companies and consumers buying a localized product expect to receive assistance and support from the manufacturer in their own language. What investment will that entail?
- In many cases, though, localization is still rolled out gradually, starting with the documentation, followed by the user interface, the collaterals (when present) and eventually by the multilingual support structure. Can you roll out your localization effort gradually, or will that cause the entire effort to fail?
- A redesign, update or upgrade of the product, brand, website, and service may be necessary. Although “just” incremental (or marginal), these costs need to be taken into account as well.
- As a thought experiment, you might consider Hudson Bay. We wrote about HBC’s failed foray into the Dutch market. They not only miscalculated their returns but also their investment; they would have needed a new supply chain with new brands in their department store to succeed, amongst other things!
Investment in localization specifically
To start the calculation, we need to have clear in mind the essential components of the localization process. Because it can be a costly investment, it’s necessary to assess whether a localized product will offer a positive return and have a clear overview of the whole investment.
- Technological investment. One of the first things you have to do is decide whether you are going to implement a translation management system or outsource the localization project management to one multi-language vendor or various single-language vendors.
- Investment in the actual translations. Including your project managers, vendors, and any other “human time” that you have to pay for, which may include developers, designers, and other roles depending on your sector.
- Investment in understanding the local market.
A High-Stakes Calculation
Depending on the scale of the required effort in your sector, getting your ROI estimations can be a high-stakes calculation. For some industries, like mobile games, localizing can be low-stakes. For others, where localizing means support, documentation, UIs, supply-chains, or physical products and stores, getting that ROI calculation right could be the difference between winning or losing millions. Many organizations find it useful to create several scenarios, each with their own ROI calculations.
Your TMS and CAT tool choices can have a major impact on the ROI of your investments in localization. Get in touch with our team to find out how Wordbee can impact your ROI.