ROI Calculation

Once revenue expectation is calculated, it is necessary to determine what return is expected and how much money should be budgeted for localization. Based on a survey of SimulTrans’ customers and other corporations with significant localization budgets, the average localization spending is 19.5% of localized product revenue or 1.8% of annual revenue. This means that to justify $64,000 in localization expenses for a particular product, a company would need to attain $328,205 in revenue from the localized product in the target market.

Looking at the calculation differently, if a company had annual revenue of $140 million, it would budget $2,520,000 for localization expenses. Usually these costs include not only outsourcing of localization but also any internal project management, engineering, and testing costs.

SimulTrans finds that localization spending varies widely, with some companies investing only 3% of expected localized product revenue while others budget 50% of localized product revenue. In addition to different perspectives and priorities put on localization, the individual calculations also may account for amortization of product development expenses across localized versions and varying accounting of international marketing costs.

In almost all cases, however, if a company can achieve a 5x return on the cost of localization, it is definitely worth the expense. While there are no guarantees, effective and aggressive international sales efforts combined with a high-quality fully localized product usually dictate good returns in the leading markets.

Tips to Reduce Localization Costs

After completing the ROI calculation, many companies realize they need to reduce localization costs to adhere to expectations or to meet budget requirements. SimulTrans recommends a number of strategies for cutting costs:

Reduce documentation. While it may be nice for international users to have access to a full documentation set, this is an area where lots of cost can be trimmed. The bulk of translation costs result from large quantities of words. By paring down the text, costs will drop significantly. Documentation can be reduced by eliminating seldom-used reference guides, rewriting materials in a more concise way, or taking advantage of single-source techniques to allow more reuse of translations throughout and across documents. International users would much rather have the user interface and help in their native languages than have a well translated book accompanying on-screen text that remains in English.

Limit languages to target most lucrative markets. Many companies feel a need to translate into the typical French, German, Italian, Japanese, and Spanish. While these are all popular languages, they may not represent the best markets for a particular product or piece of software. It makes more sense to do thorough market research and identify target languages for countries which have fewer competitive products, a stronger sales presence, and more market receptiveness. Some of SimulTrans’ most successful clients target Brazilian Portuguese, Traditional and Simplified Chinese, and Korean, even before looking to the standard “tier one” languages.

Insist on translation memory savings. Localization companies address translation memory in many different ways, some providing no discount for duplicate text, others offering partial savings, and some not charging at all for previously translated words. Avoid paying to translate text more than once by requiring translation memory be built across all significant projects and applying it aggressively to future work. Though it make take a few hours to create and manage the memory, the investment is definitely worth it to garner future savings.

Simplify and automate engineering and testing tasks. Engineering hours tend to add up during localization projects, as software must be compiled and tested many times and in many languages. By using standard resource types, extracting user interface elements from the code, and ensuring thorough internationalization, developers will facilitate a smooth localization engineering process. Automation of the compilation and testing process will allow repetitive work to be completed across multiple languages without as significant investment in human capital.

Simplify formatting. Complex graphics and formatting of documentation and help take a good deal of time to localize. They require manual editing of text embedded in graphics files, lead to problems creating translation memory, and cause costs to skyrocket. By extracting all text into more simplified FrameMaker or Word/RoboHelp documents, a company can save money in localization and speed time-to-market.

Cost-Cutting to Avoid

After all the numbers are in and the budget is stretched to the limit, some top-level managers look to the review and testing expenses as a big chunk of localization cost that can be easily eliminated or moved to in-house or target-country staff. Cutting in this area is inevitably problematic, overburdening unqualified reviewers, delaying release dates, and ultimately resulting in a poor-quality final product.

Sacrificing quality is far worse for a company’s reputation and revenue than reducing the number of target languages, limiting the documentation to be translated, or simplifying the final deliverables.