Investing in a custom software solution can require a significant investment. Measuring the effect the software will have on your business (i.e., boosting productivity, providing a competitive advantage) is vital to determining its return-on-investment (ROI).
Understanding the ROI of your project will help you to:
- Justify the project investment
- Create quantifiable metrics to determine the return over time
- Ensure you are able to clearly communicate ROI to your stakeholders
How to determine your ROI depends on the type of software that you are investing in, such as business process software or commercial (SaaS) software.
Business Process Software
As the name suggests, Business Process Software is developed to improve the workflow and processes within your company. To determine potential ROI, you should review and document areas in your business where the software will increase your revenues, lower your expenses or improve the experience of your customers.
While each business is going to be unique, some standard best practices for determining the ROI of business process software include:
- Calculate how much you are paying for processes that the software will replace. If you are unsure, talk to your staff about what time and resources these processes currently require
- Calculate the revenue opportunity that will exist with resources saved (more staff available to make sales, etc.)
- Calculate the costs associated with risks that can be mitigated or eliminated with your new software
- Determine how much you are likely to gain from improved customer experience in terms of retaining current customers and gaining new ones
- Calculate what your company can gain from improved data integrity
When you measure your ROI, be sure to consider:
- Hours saved by your staff
- Increased revenue opportunity
- Likelihood of attracting and retaining more customers
- Likelihood of avoiding more risk
Commercial or SaaS Software
SaaS stands for “software as a service,” where the software itself becomes the main source of revenue for your company, often through an ongoing subscription.
The first step in calculating your ROI for this type of software is to determine your break-even point. For a subscription model, how many subscribers do you need to break-even with your initial costs? Fortunately, it often takes much less than that to at least break even on your monthly spend moving forward.
Starting a SaaS business requires considerable expenses, from developing new software solutions to marketing and office space. And, as a new SaaS company will have a lot of expenses before they can generate revenue, initial cash flow is critical. As such, it is vitally important not to overcomplicate your product. To start, it is important to determine the minimum features required to launch a sellable product.
Working with your Developer to Calculate ROI
While calculating the ROI of your software investment can be challenging, it is essential in determining how much to invest. It will help you determine how much a potential project could benefit your business, or whether it is worth doing at all.
A reputable developer will have extensive knowledge gained through practice to assist you in calculating your ROI. PHD Solutions’ expertise in addressing business challenges through software development has proven to be a valuable resource for our clients in determining the viability of various software development projects. Our professional staff are knowledgeable in creating detailed project specifications and providing alternate solutions a client may not have considered.
If you need assistance in calculating the ROI of a software investment, the accomplished team at PHD Solutions is ready to help.