5 Stats on the ROI of Quality as a Strategic Business Initiative

Chris Nahil
By Chris Nahil on July 14, 2020

The goal of our survey of  300 C-level executives, quality and IT managers in the Life Sciences, Food & Beverage and Manufacturing industries was to better understand the state of quality management today. We also gained insight into how organizations in these industries are investing in quality both in 2020 and the coming 3-to-5 years.

The full research report shows that two-thirds of organizations are moving away from quality as merely an operational compliance issue and starting to treat it as a strategic business initiative. This shift includes increases in quality investments both in terms of headcount and budget for new programs.

But perhaps the most powerful stats are those that reveal how those investments are already impacting overall business performance. These 5 stats will show you the real-world ROI of treating quality as a strategic business initiative.

1. The average organization invests $78 million in quality

The first thing we need to know if we’re going to understand the real-world impact of quality investments is how much money companies are currently spending on their people and programs. While there were a wide range of results, we found that on average companies are investing 6% of total organization revenue back into quality programs. However, in 2020 alone, 42% of organizations plan to increase quality spending at an average rate of 21%.

2. Good quality adds an average of $156 million to organizational revenue

When we asked survey respondents how much value they believe good quality adds to organizational revenues, the average response was $156 million. The responses fell into two main categories. More respondents said $100 million to $500 million on the higher end with the lower end saying between $1 million and $10 million. Compared to the 6% of total revenue invested, good quality contributes, on average, 11% to organizational revenues.

3. The average cost of poor quality is $49 million

Whether it’s due to outdated quality management practices, ineffective technology systems, lack of training or increasingly strict compliance requirements, poor quality costs the average company $49 million per year. This is not helped by the fact that 56% of companies have seen an increase in product recalls over the last 5 years. Despite the high costs of poor quality, organizations in the Life Sciences, Food & Beverage and Manufacturing industries still see a significant return on their quality management system (QMS) investments.

4. Average ROI from quality investments is $29 million or 23%

When you factor in the returns from good quality and cost of poor quality, the net increase in revenues from quality investments is $107 million. Compared to the $78 million average investment, this is a significant return of 23%. But it’s important to note that the $29 million ROI on quality spending is strictly financial. The figure does not account for the more intangible benefits of good quality, including greater customer satisfaction and brand loyalty, positive share of voice and increased cost efficiency.

5. More than 66% of organizations say quality investments help achieve broader business goals

A consistently high number of our survey respondents (two-thirds or more) said that their organization’s investments in quality helped them achieve a broad cross-section of key business goals. The multiple response question yielded a wide range of answers, but some of the key business goals fueled by quality investments include:

  • Avoid failed audits (75%)
  • Reduce rates of nonconformance (72%)
  • Improve ability to predict and prevent quality issues (72%)
  • Create consistent, documented decision-making processes (71%)
  • Reduce the costs and impact of not meeting regulatory requirements (71%)
  • Better management of the supply chain (71%)
  • Maintain brand loyalty and reduce customer churn (69%)
  • Accelerate new product introductions (69%)

The Commitment to Quality in 2020 and Beyond

If you’re trying to make a business case for increased quality investments in your organizations, these benchmark statistics on the ROI of quality for Life Sciences, Food & Beverage and Manufacturing organizations will help. But if you need to dig deeper into the statistics to learn more about the segmentation of results and where increased investments are being applied, we have the full research report available to you.

Organizations are committing to quality as a strategic initiative—starting in 2020 but extending mostly over the next three to five years. Download the full research report now to gain insights that will help you stay ahead of the state of quality management.

And, if you’d like to know more about ETQ Reliance, our market leading QMS solution, we’ll be happy to walk you through a demo.