Custom Software ROI: Calculating the Value of Tailored Solutions

Cost-effective software development is pivotal if we take into account that businesses worldwide lose millions due to ineffective software solutions.

To prevent this from happening to your business, it may be time to consider Return on Investment or ROI if you’re looking into a custom software solution.

ROI calculations of upcoming tailored software solutions are the staple of any custom software project. By determining the value of the investment, the CTOs and executives can have a clear insight into the profitability of the software solution.

Without ROI, one can’t make correct business decisions. ROI is also vital for attracting investors and stakeholders and improving the cash flow.

How to Calculate Custom Software ROI?

ROI is an objective formula used to calculate the value that a business will have from an investment. The end goal is to prevent a negative ROI by choosing a software solution that will bring more revenue than the costs associated with it.

The gain from the investment is the net profit that the business gets from introducing the custom software project. For example, a retail company will have more sales whereas another type of business will experience more efficient processes or a reduction in losses.

The investment costs are the expenditures for the new software as well as other costs that have to do with the implementation. This could be anything from tech support and license fees to the costs of teaching the new software to the staff.

There are different methods to determine the ROI. The most common formula is net income divided by the investment costs, that is:

ROI=Net Income/Cost of investment x 100

• Take into account the costs associated with the custom software project to calculate the cost of investment, including the annual costs for operation and associated net income losses due to the software implementation
• Make estimates of the savings and profits that the custom software project will bring

Let’s say one software developing company put in five years into creating a custom software. They released it four years ago and this custom solution brought income from a reduction in costs, revenue, etc.

The software development ROI for this particular situation would be:

(Projected revenue + Operational Improvement + Reductions in Cost + Intangibles) x 4 years

(Staff + Tech+ Education & Marketing) x 5 years

= \$X

What Are the Benefits of Calculating the Value of a Custom Software ROI?

Calculating the ROI of a custom software project has numerous benefits. Here are the custom software benefits to expect:

• Rise in sales

The ultimate goal of custom software in most businesses is to increase sales.

So, if your company is selling a service or a product, the custom software may lead to a rise in sales and more profit for your business.

• Higher efficiency

The introduction of a custom software solution may better the productivity of the employees.

This is especially true if you’re looking to introduce software solutions aimed at improving employee efficiency or employee reward systems.

• Enhanced effectiveness

Custom software projects may better the agility, productivity, and accuracy of automated and other types of business operations.

• Indirect and direct savings

The custom software may remove aspects like software licenses or extra storage payments and contribute to savings.

Each one has its pros and cons and the ultimate decision depends on the company’s budget, goals, and needs.

Custom- as the name itself already reveals, this development of software is tailored for a specific person, group, organization, etc. The concept, design, creation, and use are adapted to meet the needs of the business.

Ready-made- also known as pre-made software, these options provide different solutions for the production, sales, accounting, editing, etc. of services and goods.

Final Thoughts

Calculating the ROI of custom software in advance may help you determine if it’s a worthy investment or not.

If your business has very specific needs, a custom software solution may be more appropriate. It may take longer to be developed and may require higher upfront costs, but it may be a game changer.

On the other hand, if a certain ready-made software meets the needs and budget of the project, it may be a faster and more budget-friendly solution. Not sure which option is best for your business?-Contact our experts at ArtHaus!

We help businesses implement effective IT solutions and gain an advantage over competitors. Solve your IT puzzle with the help of our experienced team!