How to Calculate ROI for a Custom Software Development Project?

How to Calculate ROI for a Custom Software Development Project?

Incorporating custom software is a pivotal decision any business makes, regardless of the industry. The secret to effective business management is to define your custom-made software tailored to your specific needs. Business owners do not make decisions at random; instead, they adhere to the interim business plan at each stage of the business lifecycle.

Evaluating the return on investment (ROI) for each spending, including custom software development, keeps the business finances in check and ensures that the company makes significant profits and income rather than wasting money on frivolous expenditures.

Custom software development is one of the critical decisions that a company can make. It should be considered as an “unnecessary investment.” Custom software is a necessity for any business; it enhances the firm’s performance and helps business owners to put specific strategies into action.

But the question here is how to evaluate whether or not tailor-made software is a profitable investment.

So, what shall you do to determine that custom software is a worthwhile investment?

Read this post; it has all the answers to your questions that you might have regarding custom software development ROI.

So, let’s get started…

Table of Contents

1. What is custom software?

Customized software, also known as tailor-made software, is software that is designed specifically for a particular organization or user. Unlike commercial off-the-shelf software or free software, custom software is not made for the mass market. These software are created for clients who want to have dedicated solutions to automate their business. These solutions are developed keeping the unique needs of clients in mind. The process of developing software is referred to as custom software development.

2. What exactly is the need for custom software?

Market competition has risen significantly in recent years, mandating businesses to use technology and emerging ideas to their competitive edge. It is vital to put in place comprehensive software solutions to keep up with the competition. Incorporating the right software can help a business achieve its business goals without much effort.

You must be wondering why you should go for custom software when there are so many ready-to-use solutions available?

There is no doubt that several off-the-shelf solutions are available in the market, which are easy to implement. But the truth remains that these software solutions are not as effective as custom software can be. Moreover, not all software are made keeping your unique needs in mind. Ready-to-use software comes jam-packed with innumerable features, which may not be of any use to you.

If you believe that having too many features in software really helps, I am sorry to disappoint you by saying that it’s not how you think it is. In fact, having too many features can be very complicated and frustrating. Moreover, choosing any solution at random is a bad idea. That is why it is advised to invest in tailor-made software as it will be designed keeping your needs in mind.

So, consider every aspect of your business and your needs before investing in off-the-shelf software. Automating your business processes will require a well-designed custom software solution.

Custom software development not only meets your specific requirements but also saves time and money. That’s the reason most businesses prefer to choose tailor-made software solutions for their business needs.

However, the only dilemma they face is determining whether it is profitable to spend on custom development software solutions. Is there a huge windfall? So on and so forth.

The best way to know whether you should invest in a custom software development project or not is to calculate custom software development ROI.

3. What is custom software development ROI?

Return on investment (ROI) is a metric that measures how much profit has been derived from an investment, whether it is developing a marketing campaign or a new software. Custom software development ROI simply implies calculating the return on buying and implementing a tailor-made solution.

ROI plays a crucial role in measuring the performance of any business. Every decision in the business is made with the Return on Investment (ROI) in mind. It is critical to evaluate the ROI of everything, whether it is for an outsourced team or custom software development. It helps businesses understand how a particular purchase will benefit them in the future.

4. Why do companies require Custom Software Development Services?

Custom software development and business process automation are critical for businesses. Custom software development can aid in the automation of your processes. Marketing, sales, customer service, manufacturing, and other areas of business can all benefit from custom software.

However, it is worth noting that custom software development requires a significant investment. The app or software being developed determines the amount of investment and the custom software ROI. Even after identifying the need for custom software and picking the best custom software development company, determining how the new solution will impact your business operations can be difficult.

Unquestionably, every business that invests in a custom software application expects to garner substantial benefits from the investment, but determining the extent of those rewards isn’t always straightforward.

5. Calculating Custom Software Development ROI

When it comes to determining the excellence of software or an application, ROI is crucial. Calculating the ROI of custom software can be incredibly hard, but with the right strategies, it becomes a breeze.

But before you begin, you must know what do you want to gain from a custom software development project?

Is it increased sales that you want to attain, or providing the best customer experience is what you look forward to? Whatever be your answer, it should be clear and not vague. Because putting in custom

software is a huge investment that you’ll make. Once you have your custom software development project’s goal(s), you’ll need to choose the metrics, such as Increased efficiency and uptime, Lead

Conversion, Renewal, and Upsell Rates, Employee Satisfaction, and Retention, Improved Customer Service, and so on.

Aside from that, you must identify the key performance indicators that will allow you to track your progress toward your objectives. When automating businesses through custom software development, selecting Key Performance Indicators is a must. To measure custom software ROI, you must consider both tangible (measurable) and intangible (unmeasurable) KPIs.

Let’s take a look at both the types of KPIs used to measure custom software development KPI.

Related: Software Development Technology That Will Rule 2022

6. Return on Investment – Measurable Key Performance Indicators

► Better Sales
Increased bottom lines are what a business aspires to have. If your business’ sales increase due to the implementation of custom software, you can simply attribute it to custom software.For example, if you have noticed an increased sale by closing new deals or acquiring new customers after implementing custom software, it’s simply due to the implementation of the new software.

► Better Efficiency
Another way you should determine to calculate the ROI on custom software is employee productivity. If your employees have become more productive ever since the deployment of customized software, then custom software development can be given credit with improved productivity. You can apportion customized software to much more productive tasks, increasing worker productivity and resulting in reduced hours of counterproductive or repetitive tasks and increased efficiency.

► Better Production
If your company’s output has improved as a result of automation, then it is attributable to custom software development. It is due to the fact that automation of repetitive tasks allows employees to focus on core tasks such as sales and marketing.

► Better Processes
If you see improved speed, accuracy, and efficiency in the business processes as a result of automation, then it should be credited to custom software development. For this, you can examine the cost of carrying out these processes, as well as the efficiency achieved before and after software implementation. If the results are positive, you have a positive ROI on custom software development.

► Improved Savings
Has the use of custom software led to substantial savings? If yes, then surely a custom software development must be carried forward. You can examine your costs to see what direct and indirect cost savings the company’s new software has resulted in.

Direct cost savings can be obtained by reducing the need for hardware as a result of a cloud migration or by eliminating the need for multiple software licenses in cases where your software was designed to replace several stand-alone programs.

After these five measurable KPIs, let’s take a look at the unmeasurable KPIs to determine the custom software development ROI.

7. Return on Investment – Unmeasurable Key Performance Indicators

After you’ve finished a comprehensive financial ROI analysis, it’s time to contemplate unmeasurable ROI. This specifically includes all of the business benefits of custom software that are hard to quantify. Here are the five most significant intangible KPIs:

► Improved Employee Satisfaction
If your employees are not happy with their work, you cannot expect to have improved bottom lines. However, automating your processes will definitely make your employees happier and satisfied. You might have noticed that the employees who keep performing the same task repeatedly have lower productivity as compared to those who are indulged in new and enticing work processes. Jobs such as data entry are very tedious jobs. Employees who are regularly exposed to routine work become disappointed and counterproductive as a result.

Custom software automates mundane, low-level, manual tasks, enabling employees to concentrate on core functions and become extremely happy. Happy employees ensure the company’s growth and help in accomplishing the company’s target.

► Improved Customer Satisfaction
If your customers are not happy with you, they will just leave to never return, which will impact your business badly. Of course, that’s not what you want after investing so much time and effort in your business. Customer satisfaction is one of the reasons most companies choose to opt for custom software development.

Automating your business processes can assist you in having satisfied customers. Building custom applications can help the company achieve goals, improve communication with customers, address user queries faster, and ship products more quickly.

Related: How to Use Customer Data Analytics for Higher ROI

► Reduced or ‘NO’ Errors
We cannot deny the fact that when a task is done manually, there are always chances for human errors, which significantly affect the overall outcome. But, implementing robust custom software eliminates or reduces any chances for errors. You can have custom software to automate and synchronize your business processes, substantially eliminating errors. Moreover, you will not need to monitor your processes because errors will be detected and reported to you before they occur. Having this information in advance will help you act on time and improve the business performance.

► Save Time
Time is one of the most valuable elements that all of us want more so that we can do more. If your employees are busy doing unconstructive tasks more than constructive ones, your bottom line will surely be impacted by that. And if this is the case with you, you’re actually losing rather than gaining anything significant in the process.

However, deploying a potent custom software will help you save time so that you and your employees can focus on your core areas, such as business development, making sales strategies, etc. And if it happens, then undoubtedly, your custom software ROI will be increased.

► Improved Brand Image
All those efforts you have been making for all these years were to make a good brand image in your customer’s eyes. If you could not do it so far, then surely automating your processes would do it for you. Automating your processes can assist you in improving your brand image and meeting your marketing objectives. You can attribute a better brand image to your dedicated resources if it results in a higher ROI on custom software development.

To sum it up…

So, that is all about the custom software development and the return on investment on custom software. Custom software is a necessity in today’s scenario, so don’t take it lightly. Suppose you’re finding it difficult to make a decision. In that case, it’s better to calculate custom software development ROI and get a positive return on investments; then, indeed, it’s a worthwhile investment.

Return on investment is an important factor to consider when investing in custom software. Calculating ROI for custom software may appear difficult at first. Still, with a little effort and the right strategy, you can easily calculate it and understand the value of investing in robust custom software today and fetching the best outcomes in the future.

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