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How to Calculate ROI for Custom Software

Laura MacPherson November 2, 2017

If your company is considering custom software, you want to know that your investment will see a return. But each company is unique, and each project is different. How can you know what kind of return to expect?

Software can deliver myriad benefits with calculable ROI, but not all will apply to your business. In this article, we’ll look at several of the most common, and offer some guidance on how to assess the business impact of each. Then you can choose the ones that apply to your situation and run the numbers.

Will It Help You Sell More of Your Products or Services?

Companies are always asking, “How can we sell more of our products and services?” Custom apps can make the answer to this question simple. Consider the time savings that Starbucks provides with its app’s online ordering capability. Customers no longer have to wait in line, so more people will be able to stop in for a purchase, even when they’re in a rush. Panera is experimenting with the same concept, in stores.

Will It Help You Sell a New Product or Service?

In the age of app-driven services, custom app development can be the key that opens a door to a completely new product or service. Think Lyft, TaskRabbit, Headspace, and Spotify. Potential revenue from a brand new offering is notoriously difficult to predict. Existing companies will be able to estimate potential revenue based on historical numbers from similar products or services that share a similar target market. Startups should be cautious and err on the conservative side when projecting revenue.

Will It Help You Retain Customers That May Otherwise Leave?

Customers’ situations change, and what used to be convenient may no longer be. Barre3 has a loyal customer base, but not everyone can consistently get to a studio if they don’t live near one. Customers who move or whose schedules no longer allow them to make the trek can access the workouts via an online hub, where they can also participate in challenges and find tips and advice — just like in the studio. Take a look at your customer churn rate, and send a survey to old customers, asking if an online offering would be attractive to them.

Will It Reduce the Resources Dedicated to Customer Service?

Customer service is a significant expense to many businesses. What if you could reduce that cost with the help of automated software? If customers could find the answers to their questions easily online, or conveniently service themselves, you can cut costs. You’ll need to estimate the amount or number of resources that could be saved in your specific business process. Could you save 10%? 20%? More? Also consider opportunity cost — what could your employees be doing instead with the time they’re currently spending on unnecessary calls?

Will It Save Your Employees Time?

As we’ve just mentioned, your team members’ time is money. By making your employees more productive, what additional work could they accomplish? How would that work help you move toward your goals? Automating business processes frees time that your team members can spend on more important work.

Will It Improve Asset Management?

If you operate a facility, would custom software help you improve maintenance? Will it enable you to better manage inventory? How much money are you currently wasting in downtime?

Will It Improve Supply Chain Management?

Would business intelligence that gives you insight into bottlenecks and slowdowns allow you to make changes that will improve your processes? What would increased speed do for your profitability?

Will It Enable You to Avoid Fines and Other Costs of Mistakes?

Mistakes are costly, especially when they trigger fines. HIPPA or OSHA violations can be significant, and if you’ve ever experienced these, you know how they can hurt. Custom software can provide not only systems that minimize your risk, but also create paper trails in case you’re audited.

While there are other benefits that custom software can provide, these are the most common. Be sure to add all those that apply to your company into your calculation. Now let’s look at the cost of custom software.

The Cost of Custom Software

The initial cost of development is only one element of the cost of custom software. Here’s the breakdown of everything you should consider.

Initial Development — While many developers aren’t skilled in scoping projects, a good software development company will know how to scope a solution that helps you reach your objectives and provide a reliable estimate for the project.

Ongoing Bug Fixes — Even if your software development company does extensive testing, every software solution will experience bugs when it gets out into the real world. If you plan ahead for these inevitable fixes, keeping an error log to make fixes easier, you’ll limit the expense of bug fixes. Your software company should be able to tell you what to expect.

Hosting — The cost of hosting will vary depending on the requirements of your specific solution, but your software company can tell you what to plan for.

Feature Upgrades — Chances are, you’ll want to add features, as customers request them or you see how you could experience even greater benefits. It’s smart to plan ahead for these.

A good software development company will be able to advise you on how to get the most out of your software solution, and help you plan for the costs. Want to chat about a potential project? Tell us about it!

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