We understand that business is hard. Making important decisions such as software development can be even harder. Like everything, you want to make the smartest choice possible, but there are always those ever-present budget constraints hanging over your head.
The problem is, people often focus too much on finding something ‘cost-effective’ (cheap), and forget about the long-term returns on investment. More importantly, they don’t consider the expenses and potential losses that come with shopping cheap.
How to calculate your ROI
Ok, so how do you work out the ROI on a piece of custom software? We wish we could give you a nice, neat formula, but it’s not as simple as that. Let’s say you decide to flip a house. Working out the ROI is easy because there’s a tangible asset. You look at the original house price plus any investment you’ve made on renovations. Then subtract that from the price you sell the house for. That’s your ROI. Software development isn’t so easy.
It all really depends on what you use the software for, and how it changes your business. For example, if the software makes things faster for your staff, then you save money on staff hours. But then, those staff could also make more sales instead of doing mundane admin. Sales you wouldn’t have had before.
A system that automates sales and marketing tasks, for example, essentially generate more income on its own. So, when it comes to software there are many layers of how you can save or generate money. Plus, remember that ROI isn’t instant. If a $50,000 piece of software could somehow put $100,000 in your bank account, that would be great! But the reality is, software pays for itself over time. Let’s look at what good software can save you, too.
Hidden costs that reduce your ROI
Cheap software solutions may look great on the surface, but it’s the hidden costs you need to worry about. There are the obvious ones, of course. Software not being scalable means you’ll have to replace it in a few years. If the software isn’t fit for purpose and you need to keep updating it, that costs money.
But there are also plenty of costs that are hidden deeper. Actually, they’re almost invisible, until you realise your mistake. Let’s say you went with a cheap software that offers some business process improvement a bit, but has no capability to automate tasks. Not only have you got cheap, low-quality software, but you’re missing out on all those savings we mentioned before. Maybe you decided against CRM integration because setup costs were too high, but consider all the leads you’ll never generate, let alone convert to sales. It’s just money, and more importantly, business growth, walking out the door.
Why cheaper software development isn’t best
Ultimately, we can’t say that every cheap product is bad. However, the key message is to not get caught up in the cost, because it’s the ROI that matters. The net benefit you receive from software is the only metric that matters.
Look at it this way: If you wanted to buy shares in a company, do you look for the cheapest stock prices, or the stocks with the most potential to earn you money? Software is an investment just like any other, so focus on what’s going to give you the best overall return on investment.