How to Calculate ROI from AI Automation: A Guide for Business Leaders
"We want to use AI to automate our processes — but how do we know if it's worth it?" We hear this question constantly. The good news: AI automation ROI is very measurable. Here's the exact framework we use with clients, plus worked examples so you can run the numbers yourself.
The ROI Formula (Simple Version)
ROI = (Value Created — Cost of Automation) ÷ Cost of Automation × 100
An ROI of 100% means you doubled your investment. 300% means you 4x'd it.
The formula is simple. The hard part is correctly calculating "Value Created" and "Cost of Automation." Most businesses underestimate both — which leads to either missed opportunities (dismissing automation that would be hugely valuable) or disappointment (automating processes that don't generate meaningful savings).
Step 1: Measure the Cost of the Current Process
Start by quantifying how much the current manual process actually costs. Most people focus only on labour, but the real cost is much broader:
Direct labour cost
Hours spent × fully-loaded hourly rate (salary + benefits + overhead). Don't use base salary — multiply by 1.3–1.5x.
Error/rework cost
What percentage of manual work contains errors? What does fixing them cost? Include downstream impact (customer complaints, refunds, compliance fines).
Opportunity cost
What would your team be doing if they weren't doing this? Skilled people doing manual data entry are not working on higher-value tasks.
Speed cost
If a process takes 3 days and could take 3 minutes, what's the business cost of that delay? Lost deals? Slower customer service? Late invoices?
Step 2: Calculate the Cost of Automation
Be honest about the full cost of building and maintaining the automation:
- Initial build cost (development + testing + integration)
- Infrastructure cost (cloud hosting, API costs, licensing)
- Maintenance cost (updates, monitoring, bug fixes — typically 15–20% of build cost per year)
- Change management (training your team to work with the automated system)
Worked Example: Invoice Processing Automation
Scenario: E-commerce company processing 500 invoices/month manually
Current Process Cost (Annual)
Time per invoice
20 minutes
Monthly volume
500 invoices
Monthly hours
167 hours
Fully-loaded hourly rate
₹800/hr (~$10)
Annual labour cost: ₹16,03,200
+ ₹3L in error rework + ₹2L in delays = ₹21L total
Automation Cost
Year 1 ROI: 114%
Year 2+ ROI: 1,200%+ (recurring savings, minimal cost)
Payback period: 5.6 months
Red Flags: When AI Automation Doesn't Make Sense
Not every process is worth automating. Watch out for:
- ✗Processes that happen rarely (less than 50x/month) — the fixed cost rarely pays off
- ✗Highly variable, judgment-heavy work — AI handles well-defined rules, not ambiguous decisions
- ✗Processes that are changing rapidly — automating an unstable process creates expensive rework
- ✗When the data quality is too poor to automate — garbage in, garbage out, faster
The Processes Most Worth Automating
Want us to run the numbers for your process?
Get a free automation ROI analysis
Tell us what process you want to automate. We'll build a detailed ROI model and tell you if it makes financial sense — before you spend a rupee.