This is the original version of the article I wrote titled “Calculating the ROI of Localization Is No Mean Feat”, published on the Wordbee blog.
What is the return on investment and how can you calculate it?
As with any financial topic, understanding the basic principles is essential, 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, it is good to remember that this refers to the resources used for a specific project/activity, including the human resources. But the hardest part consists in identifying each and every component required for that project/activity and the associated resources.
Calculating the ROI of localization
A comparison with the publishing industry might help frame the topic.
Elena Ferrante vs. Dan Brown
Within the publishing industry there are mainly two kinds of products (you can call them books, publications or whatever takes your fancy): one kind of product developed exclusively for a domestic market and one developed for the international market.
As an example for the first case, we could take the books by the now internationally renowned Italian writer Elena Ferrante. Her books were originally meant for the Italian public, but, rather unexpectedly, they attracted the attention of an international audience. For the second case, we could take Dan Brown’s books, a long-time international author whose books are published at the same time in the original version and in the translated versions. This is a typical example of simship, to the point that, when the publication date approaches, translation teams are set up to work on local language versions of any new book, most often secluding the linguists and having them sign compelling NDAs. (Oh, and they’ve even made a movie about it.)
While the translation of Elena Ferrante’s novels is probably now managed like Dan Brown’s, the publication of her first work outside Italy involved a substantial and risky investment. The publisher couldn’t know whether the book was going to be an international success, and the only projection was probably the opinion of some smart reader at the publishing house. On the contrary, the localization of any Dan Brown’s book is now a safe investment spread across several markets. Let’s not even talk about what happened with the Harry Potter saga of the then unknown and now billionaire J.K. Rowling. If its publication in the UK was a gamble, translating it was even more so.
The risks of localization
The term localization was originally used only in conjunction with software. Nowadays the term localization has taken on a wider meaning: “Adaptation of content to make it more meaningful, appropriate, and effective for a particular culture, locale, or market.” (Source: The Language of Localization).
So, let us take the case of software localization, whether it’s a full computer program or a small app. The localization mechanism is very similar to the one in the publishing industry, with a small difference: while a publishing company offers its books to other publishers in other countries, who take on the translation and, therefore, the localization risk, in the software industry it’s up to the software company to face all the localization risks. The calculation of the ROI of localization in this case is an achievement in itself.
ROI of localization: breaking down the costs
To start the ROI 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.
Companies and consumers buying a localized product expect to receive assistance and support from the manufacturer in their own language. 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. Each step has its own costs that contribute to form the overall investment in the end. Also, a redesign, update or upgrade of the product may be necessary. Although “just” incremental (or marginal) , these costs need to be taken into account as well.
Therefore, when putting your figures on paper, don’t stop at the mere localization costs, i.e. those for translation/adaptation. First look at the markets you plan to address. For example, the FIGS languages 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.
If you decide to localize your product into Chinese, in theory you have the same chances in terms of return because the Chinese population is as numerous as the FIGS population put together. In practice, you could end up investing for Chinese the same amount necessary for four languages together. When it comes to localization into Chinese, linguistic, cultural and legal issues are so different that a profound intervention may be necessary.
In addition, you’ll need to decide whether you are going to implement a translation management system or outsource the localization project management to one multi-language vendor or to different, distributed single-language vendors.
Moving on, for your calculation you’ll also need to indicate the estimated revenue. And this is even harder to guess than investment. You could start by analysing the accesses to your website, to see how many visitors are from abroad, how many foreign language visitors you have (at least according to browser settings), how many conversions from SERP with the same parameters, etc. By the way, your website should also be localized at the same time as your product(s), and the same applies to your newsletter(s) and the marketing materials (which are now fully regarded as collateral).
Localizing means broadening the audience. Broadening the audience means broadening the revenue possibilities, and by increasing the audience and increasing the revenue your company can continue to grow. All this is very appealing, but to calculate the ROI of localization the formula taken from Wikipedia is not enough.
Any localization effort deserves thorough and accurate planning to be successful. If well planned and executed, the expensive initial investment pays for itself quickly and helps “spread” the investment for more localization, typically for new and rare language combinations.