For company leaders, the bottom line is at the core of all business decisions. This is certainly true for a custom software or mobile app development project, regardless of whether it’s a $5,000 project or a $5,000,000 project. So before you secure funding and hire a top software development company, it’s essential that you clearly calculate the estimated ROI.
Startups and Fortune 500s alike frequently skip this task, which leads to delays or even a lack of buy-in from investors, the CFO, board of directors and other company leaders. This happens because they’ve failed to answer a couple of simple but very important questions: “What’s in it for us? How will this new software platform, mobile app or data infrastructure affect our company, its operations and our bottom line?”
Taking the time to identify and quantify the business impact will lead to an accurate software development ROI estimate.
Key Questions on App and Software Development ROI
To understand the ROI for software platforms, a new data lake and data management infrastructure or a new mobile app development project, you must take the time to explore how this new technology will affect your company and its operations. Here are a few essential questions that you’ll need to consider:
- Why are you seeking to develop this new app, software or data governance system? What are the key pain points that you’re hoping to solve?
- What is the implementation and support plan for this new technology?
- What processes will be affected? How?
- Who will be affected by the new technology, both directly (e.g. actual users of a new CRM platform) and indirectly (e.g. workers involved in a process that’s modified due to the addition of a new CRM.)
- Will employees and other users require training, tutorials or other support?
- Will you need to purchase new hardware to support your new software, app or data infrastructure?
Each of these points must be thoroughly addressed. It may be necessary to speak with staff from different divisions of your company to gain an accurate understanding of the current processes and how they’ll be affected by the proposed changes.
A complete exploration of the aforementioned points is absolutely critical; if any points are overlooked, the project’s ROI will almost certainly be affected. For instance, let’s say you failed to realize that a particular group of workers would need to use your new ERP platform. It will take time, resources and ultimately, money to train this group, which — in turn — impacts your bottom line. Take the time to perform research, and speak with internal and external stakeholders so you know precisely how this development project will affect your business and its customers/clients.
Quantifying Software Development ROI
Once you have a full understanding of how your new software will impact your company, its operations and its customers/clients, you’ll be well-positioned to crunch the numbers so you arrive at an accurate software development ROI.
Your chances of receiving buy-in, support, and funding for the development project are dramatically increased if you provide hard numbers, backed by solid research. There are many factors affecting software development ROI, including the following.
- Cost of implementation. The implementation process is often complex, particularly in cases where a company is shifting from several stand-alone software programs to a single, all-inclusive software portal. So there’s the issue of data migration, along with the need to shift various processes to the new platform. This will entail lots of planning, time and money.
- Cost of hardware. Some software platforms may require new hardware, so you must determine the cost of acquiring this new hardware, along with configuration and set-up costs and any long-term maintenance expenses.
- Cost of training/tutorials. Often, users will require training or tutorials in order to effectively utilize your new software. Whether it’s an in-software tutorial feature or in-office training sessions, you’ll need to account for the time and cost as you calculate ROI.
- Cost of ongoing support. Ongoing support and maintenance is essential, whether you’re building a new ERP platform, a CRM or other type of custom software. It’s important that you budget for ongoing support at a price tag of approximately 20% of the original development cost per year. So if you have a $100,000 software platform, it would be prudent to allocate $20,000 for true around-the-clock support, software updates and maintenance. Ideally, you should opt to have the original developer provide that support and maintenance; their familiarity with the platform means they’ll be optimally positioned to maintain the software in an efficient manner.
Additionally, it’s critical that you accurately calculate the financial savings from the new software, combined with the new income that you’ll generate with the help of this new technology.
How to Determine ROI for Your Custom Software
In a vast majority of instances, companies invest in custom software development projects with a goal of:
- Saving Money: Improving operational efficiency, thereby saving money on their bottom line;
- Making Money: Increasing revenue and accelerating growth with the new software platform; or,
- A combination of both objectives.
It’s essential that company leaders take the time to identify the ways in which the new software will impact ROI by examining the benefits. Evaluating true business impact can be a challenge, though, so here’s a look at some of the key factors to consider.
- Process Benefits — Is the software improving your processes in terms of speed, accuracy or efficiency? If so, you can calculate ROI in terms of man hours or other similar financial savings. Simply identify the processes that are impacted by the software and remember to look downstream as you evaluate the ROI differential.
- New Capabilities — If the software platform is giving your team new capabilities, then all associated revenue and ROI from these new capabilities can be attributed to your software development project.
- More Customers or Sales — If your new software is helping you to close more sales, secure more customers or retain customers more effectively, then you can fairly attribute this revenue to your software investment.
- Reduced Costs — You’ll want to examine your costs to determine what direct and indirect cost reductions have arisen as a result of the company’s new software. The direct cost reductions can take many forms, such as a reduced need for hardware thanks to a shift to the cloud or the elimination of multiple software licenses in cases where your software was designed to take the place of several stand-alone programs.
Company leaders can view a software development project as an investment or an expense. Those who can accurately calculate ROI, tend to view the project as an investment, whereas those who are unable (or unwilling) to determine ROI tend to view it as a cost or expense.
At 7T, we examine ROI and motivations at the very start of the software development project. What’s driving your initiative? Are you seeking to save money, make money or both? In cases where a client doesn’t have a clear idea of ROI or business impact, we’ll work with that company to gain a better understanding of the potential business impact before embarking on a software development project.
Notably, 7T always strives to provide clients with a 3x to 5x ROI in a span of approximately 18 months, though many clients far surpass these metrics. And while hard numbers are ideal, there will be some costs that require estimation. In those cases, it’s wise to calculate figures for a worst-case scenario and a best-case scenario. This will allow you to provide stakeholders and company leaders with a comprehensive ROI estimate.
Short-term and long-term ROI figures are also helpful, particularly in situations where a company has significant one-time costs associated with software implementation and training users so they can make the most of the technology. Therefore, it’s generally best to provide a 12-month ROI estimate, along with an estimate for subsequent years, once the new software is already in place.
Remember, company leaders and decision makers want to see how a new software development project will increase revenue and/or save on expenses. Tangible, quantifiable benefits should be clearly articulated in your software development ROI presentation. This is the key to getting support and buy-in.
Once you’ve successfully received funding approval, it’s time to get started with a top software development company like 7T. Regarded as a top Dallas mobile app developer and software development company, we work with clients nationwide as they strive to achieve a profitable digital transformation. From ERP and CRM development, to one-of-a-kind mobile app and custom software development projects, we’re well-positioned to assist with a broad range of development projects. We also offer services and tools for data lake creation, data governance, data visualization, cloud integrations and system integrations. In fact, our work speaks volumes!
7T has offices in Dallas, Houston, Chicago, and Austin, but our clientele spans the globe. If you’re in search of an innovative team to develop your next software solution, contact 7T today.