How to calculate ROI of software development
Developing your own software, whether in-house or outsourced? This can be a powerful way of ensuring that you deploy applications which are genuinely tailored to your needs or which deliver functionality that you cannot find off-the-shelf. The trouble is, measuring the return on investment (ROI) on a specially developed application can be tricky. And with many software development cycles taking many months and involving a great deal of manpower, you want to be sure that it was all worth it.
Calculating the ROI of software development is not merely a nice-to-have element to tack onto the end of the development process. It is critical to your business bottom line, and helps you adjust future development approaches so that your strategy continues to be worthwhile.
However, there are many different approaches to calculating software development ROI. First, you need to develop a clear understanding of the cost involved in the project itself. Remember that this includes staff costs, hours taken and any technology costs incurred.
Then, you need to establish which factors are most important to the ROI of this particular project, and calculate those accordingly. Some of the most common critical areas are as follows:
Sales volumes
The bottom line of any business, after all. Does your new software enable you to increase them? New software can increase sales in a vast array of ways. A new customer app, for example, might make it quicker or easier for them to make purchases in-store or online. A new application managing the production of products might mean that more can be created in less time than before.
Staff productivity
Increasing staff productivity can be one of the simplest and yet most impactful way of software generating ROI. Does your software reduce the amount of time staff take to complete tasks (or even remove the need for them to complete certain tasks altogether)? Does it reduce instances of inaccuracy and error, so they spend less time checking and fixing problems? Does it empower them to be more creative and innovative, or enable them to work more strategically?
Staff retention
Recruitment and training costs can have a substantial impact on your organisation’s bottom line in the short and medium term, and a substantial impact on its productivity and growth in the long term. Organisations which develop a reputation for being unable to hold onto staff can find the effect snowballing. As such, software which makes your employees’ jobs easier – or more enjoyable – can deliver a truly extensive and long-reaching ROI.
Customer retention
Long-term, loyal customer relationships are the bedrock of sustainable businesses. However, in today’s dynamic online world, it has never been easier for customers to research alternative options and move onto competitors. As such, software which focuses on enhancing customer relations can be hugely powerful. Does your new application help customers to reach you and have their queries answered more easily? Does it help them maximise what they get out of your products or services? Does it support cross-selling, or up-selling?
Vendor/partner relations
Like customer relationships, reliable vendor and partner relationships generate valuable business stability and can ensure well-managed supply chains and a manageable budget on third-party supplies and services. Software developed in-house may enhance these relationships, perhaps by speeding up invoicing and procurement processes, or improving communication between the partner and your organisation.
These are just some of the areas that you may wish to look at when calculating the ROI of your bespoke software development. Whatever is most relevant to you, take the time to go through a thorough exercise of evaluation. It can ensure that your next development lifecycle is even more beneficial.
If you’ve got a software development project you’d like to discuss or need the integration of a legacy system then get in touch with APH and we can talk you through how we can help.
