Managers face an uphill battle when justifying the high cost of translation and localization. This article was written to help managers, especially in Information Technology, answer the question, "How can we justify or measure the ROI of a localization program?"
⚠️This article was first published n 2013. While most of the information is still accurate, SimulTrans has created a new ROI Calculator.
To accurately calculate the return on investment, a manager needs to calculate the localization cost and the expected revenue from the localized product. Fortunately, many investments in this regard need only be made once and can be leveraged in future product updates. Once the initial localization investment is made, it can be repaid many times through a few release cycles.
Cost of Internationalization
If a product is well-designed, internationalization costs should be virtually nothing. Ideally, the application already provides a single code-base that houses all user-interface text in separate resources, allows the operating system to control any locale preferences (such as time, date, sorting, and currency format), and accounts for the various character encoding requirements of single- and multi-byte languages.
The internationalization process should be integrated into code development. Using operating system or programming language Application Programming Interface (API) calls to manipulate input, format dates, display strings, sort lists, and provide other character-processing functions eliminates the need for additional internationalization programming. In fact, the use of these built-in utilities often simplifies application development by replacing days of manual programming.
If the software is not well-internationalized, the initial investment required is higher. An assessment to determine the current global functionality of an application usually costs $10,000 to $20,000. Implementing the changes recommended often requires an additional $60,000 to $800,000, depending on the scope of work required and the division of labor between internal engineers and an outsourcing partner. This type of work is often very challenging, requiring the work of top-level architects at a cost of over $200 per hour.
Throughout the internationalization process, it is important that developers are heavily involved. The software engineering team must learn what changes are being made to the code and what techniques should be used in updating the internationalized application going forward. It is a big mistake to allow source code to be branched between internationalized and non-internationalized versions. The primary goal of the endeavor should be to develop a single code-base that will be used globally. By maintaining the application in this way, there should be no need for future internationalization work.
Cost of Localization
The bulk of the localization expense is actual language translation work, followed by engineering efforts, documentation and help formatting, and project management. These costs vary depending on the size of the application, the engineering processes and tools used, the level of testing required, and the complexity of the software and documentation. Schedule requirements also can affect the final costs since the additional review is required if components are divided among a large team of translators.
Localization companies each charge for services differently, incorporating line items, discounts, and services in a variety of ways. Obtaining a thorough analysis and proposal for a specific project is the best way to accurately figure out costs. There are also methods for calculating ballpark localization costs for budgetary purposes.
One approach to estimating cost involves taking the total project word count (including software user interface, help, and documentation) and dividing it by two to get an approximate per-language cost. For example, if a project had 128,000 words, you would expect to spend around $64,000 per language on localization, including translation, engineering, publishing, and project management costs. Costs vary from one language to another (where you might pay $48,000 for Spanish and $82,000 for Japanese), but this gives a general average to use for a quick calculation.
Revenue from Localized Product
Calculating the revenue from the localized product, or at least the net return, is more challenging than determining the cost. Existing market data and sales history numbers are the most reliable components. Without current data, many companies use estimates to predict expected revenue, basing them on sales forecasts, advance orders, or current sales of the English-language product in each target market.
Ongoing Return on Investment
While the initial cost of localization may seem high, fortunately, much of this work can be leveraged across various similar products or subsequent releases. By using translation memory, where text is memorized into a database the first time it is translated, each sentence need only be translated by a human translator once. When the text appears again in an update or another document or product, the translator is prompted with the existing translation and can accept the translated text from the database.
The use of translation memory can lead to savings of 10–50% or more over subsequent releases. By taking advantage of memory tools, the cost of localization decreases, and the return increases over time. For example, a company with four product releases may pay $146,496 for the first localization round and only $91,479 for the fourth update, saving $145,267 (approximately 25%) over the releases.
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 the 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 the 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 that 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 may 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.
