In today’s world of rapid software development lifecycles (SDLC), organizations are always looking to take every step possible to reduce their time-to-market to gain a competitive edge. Despite this pressure, team leaders must still leverage the data they have available to determine which steps will increase their efficiency and yield a positive return on investment (ROI).

This guide will help you calculate and optimize your test automation ROI through a data-driven approach.

What you’ll learn:

• How to calculate test automation ROI using proven formulas
• Key factors that influence the success of your automation strategy
• Best practices for maximizing ROI across your SDLC
• How the right tools can streamline testing and boost efficiency
• Where Ranorex fits in to help you achieve your goals

How to calculate the ROI of test automation

Before you begin tallying up your total costs and analyzing your testing KPIs, it’s important to know what goes into test automation ROI and why you need it.

Why calculate test automation ROI?

A study done in 2024 found that, as of 2019, approximately 23% of a company’s annual IT budget was dedicated to quality assurance (QA) and testing. Proving the need for investment to stakeholders becomes essential with so much revenue on the line. Demonstrating the ROI of test automation presents a data-driven business case for your testing strategy, making stakeholders and executives more willing to accept the initial investment.

Formula for calculating automation ROI

The formula for calculating automation ROI is:

ROI = (Benefits – Costs) / Costs x 100%

While the formula itself appears straightforward, accurately determining all the factors that go into the total benefits and costs can be a challenge. For example, some key metrics that could be used to calculate the benefits of test automation are:

Time 

One of the biggest savings of automation is the time it saves your testers. Manual tests can take significantly longer than automated tests, with the formula for net time savings being: 

Savings = (Time for manual test – Time for automated test) × Number of tests × Number of test runs 

The longer each manual test takes and the more often it’s repeated, the greater your automation ROI.

Risk 

Test automation enables higher test coverage and lets development teams detect and remediate defects earlier in the SDLC. The result is less technical debt, better risk mitigation, and ultimately, a better product.

Salaries

While some initial investment is required, test automation software is less costly than manual tester salaries. Some human testing will always be necessary, but test automation reduces the number of testers you’ll need on staff.

Some factors that contribute to your total costs include:

• Automation tool licensing
• Resources for installation, configuration, and onboarding, according to your test automation framework
• Time needed to develop and maintain automated tests
• Resources for setting up, maintaining, and improving the testing environment

As an example, suppose a company is evaluating a potential investment in test automation tools. Their total benefits might be:

• Time savings: $40,000
• Savings from tester salaries: $30,000
• Savings from risk reduction: $20,000

Their total costs might be:

• Licensing costs: $10,000
• Maintenance costs: $20,000
• Onboarding and training costs: $15,000

Taken together, this company’s test automation ROI would be:

(($40,000 + $30,000 + $20,000) – ($10,000 + $20,000 + $15,000) / ($10,000 + $20,000 + $15,000)) X 100% = 200%.

From the above calculation, this company would gain $2 from implementing test automation for every dollar they spent in the process—a gain well worth the investment.

How to calculate efficiency ROI

Assessing the full ROI of test automation goes beyond dollars and cents. Efficiency ROI measures the improvements that automation brings to your software testing processes, helping you evaluate the effectiveness of your testing efforts.

What is efficiency ROI?

While traditional ROI focuses on monetary returns, efficiency ROI focuses on the gains your test automation tools provide from a time-focused perspective. It’s calculated in terms of man-hours saved, and it can prove highly beneficial in determining how worthwhile your automation initiatives are.

Despite its usefulness, several assumptions go into calculating your efficiency ROI. First, all manual and automated testing times are normalized by dividing by 8 and 18, respectively. That’s because human testers are generally not expected to test for more than 8 hours per day, and even automated testing tools are unlikely to operate around the clock—18–20 hours is a safe estimate.

Efficiency ROI also assumes that your test automation tools can completely replace manual testing, and that you’ll only ever need one tester on your team. Testing will always require some human element, so use efficiency ROI as a rough guide.

Formulas for calculating efficiency ROI

There are multiple formulas for calculating different components of your efficiency ROI:

As you calculate your efficiency ROI, note that the period of ROI is the duration in weeks that you are measuring to calculate your ROI. Estimating the right time interval is therefore essential for accurately calculating your efficiency ROI, as a longer ROI period lengthens your development, execution, and analysis time.

As an example, if a team needed to develop a test script that took 4 hours to complete and was required to perform 20 test cases, their automated test development time would be:

(4 hours * 20 test cases) / 8 = 10 hours.

Similarly, for an ROI period of 6 months (24 weeks) and a test execution time of 2 hours, the manual execution time to complete 10 test cases would be:

(2 hours * 10 test cases * 24 weeks) / 8 = 60 hours.

With these key metrics in place, teams can evaluate the effectiveness of their testing workflows, and of their QA pipelines as a whole.

Strategies to maximize automation ROI

Once you evaluate the benefits that automation could yield, the next step is to implement the strategies needed to optimize your automation ROI.

Select tools wisely

Portability, integration, reporting, and functionality are essential for choosing the test automation tools that align with your operations.

When evaluating a test automation platform, select one that fits your team’s current skillset, is easy to learn and onboard, and comes with the reporting features you need for faster analysis and test design. Many industries must adhere to specific regulatory requirements, so ensure that your testing tool can help you maintain compliance.

One top-ranking test automation platform is Ranorex. Ranorex Studio is not only intuitive and user-friendly, but it also integrates with the development tools that are most commonly found in your tech stack. Its extensive reporting and testing functionalities let you optimize your testing processes, and it can be configured according to the leading industry standards to help you demonstrate your compliance in the event of an audit.

Ensure your product is test automation-friendly

Automation won’t do you any good if your product is untestable. Developing your products with easy testing in mind will speed up your automation efforts, leading to faster release cycles.

To make the most of your automation ROI, shift your testing considerations left within the SDLC. The tests that are most suitable for automation must be run often, involve larger amounts of data, and cover areas of critical functionality or especially high risk. Prioritize these for automation.

Don’t discount qualitative benefits

Some of the benefits of automation can’t be quantified, but they still deliver significant value to the rest of your development and business processes. A few qualitative benefits of automation are:

Another benefit of test automation is the improved customer satisfaction it offers the user. Automated testing lets you detect and resolve bugs faster, for fewer issues upon deployment, leading to a superior user experience, which fosters greater brand loyalty and higher profitability.

Common mistakes that impact automation ROI

Despite all the benefits, implementing test automation still comes with its share of hurdles. Avoid these mistakes to overcome the most common test automation challenges and maximize your automation ROI.

Trying to automate everything

The goal is never 100% automation—some tests require a human touch. Assuming complete automation can skew your estimation of labor costs and inflate your ROI calculations. When you estimate your automation ROI, assume you’ll still need at least one human tester.

Automating the wrong test cases

Not every test case is a good fit for automation. Automating the wrong tests can decrease your testing efficiency and undermine your automation efforts, so automate those that fit the criteria listed above—and leave the rest for your human testers.

Overlooking test maintenance

Automation is dynamic, not static. Regularly review and update your test cases as your product requirements evolve, implementing new tests and removing obsolete ones as needed. 

Automating your tests with the right systems is also critical, as emulators and simulators often fail to provide the real-life testing conditions that end-users face. When evaluating a test automation platform, look for one that delivers comprehensive testing over the full spectrum of everyday testing conditions.

Not prioritizing portability

Portability is essential for automation, as your product must run under a wide range of systems and conditions. Prioritize portability in your automation infrastructure, so that you won’t have to rebuild your test scripts as environments change.

Bottom line

While calculating your exact automation ROI can involve a number of factors, it’s ultimately not a question of if test automation will add value to your SDLC and business processes—it’s a question of how much and when. 

Developing a strategic test automation requires careful analysis of your current test scripts and processes, as well as the tools available in your tech stack. Identifying the best tests for automation, carefully calculating your net benefits and total costs, and implementing proper testing best practices can all help you craft an intelligent test automation framework, letting you build a better product and gain a competitive edge.

This might sound like a heavy lift, but it doesn’t have to be with the help of the right tools. A workflow-ready test automation platform like Ranorex Studio can plug into your existing tech stack and processes to help you release faster, reduce defects, and cut costs. This not only delivers a better product, but also delivers a higher return on your investment. See first-hand how Ranorex can make a difference in your automation program—request a free trial today!