Software Development

Measuring Return On Investment ROI For Software Projects

Suppose you plan to create a SaaS application or any other software to meet your business needs or already have such software or application. In this case, defining your income from this app and calculating your return on investment ROI for software projects would be best. Building custom technology or licensing expensive software solutions is never simple. Often, your organization commits to many investments necessary to achieve significant gains in your business. If you own a digital product or custom software, you probably want to assess how technology investments affect your software ROI. Measuring the software ROI of these investments is more challenging than it sounds, and, therefore, explaining their financial impact will be more difficult. In this article, Kapsys seeks to explain how you can evaluate your technology decisions and measure the impact on your organization.

What Is Custom Software Development ROI?

Return on Investment (ROI) is a metric by which you can measure or evaluate the profitability of your business and investment, whether it is developing a marketing campaign or new software. The return on investment for custom software development involves calculating the return on purchase and implementing a custom solution.

Likewise, every business decision is made by stakeholders, primarily considering the return on investment (ROI), as ROI plays a vital role in measuring the performance of any business. In addition, ROI is critical in helping companies understand how a particular purchase will benefit them in the future.

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Why Calculate ROI for Software Projects?

In simple terms, ROI provides a valuable financial metric for determining how your company maximizes outcomes and profits. Also, ROI calculation is essential when you want to know how much money is invested in a team, project, hype campaign returns, etc.

Software development is primarily intended to generate revenue more than the costs of creating the software product or, at least, to offset the investment made in the software while improving operations, competitive advantage, or decision-making capabilities. Thus, the ROI is how profitable or harmful the project or product you are working on is. 

So, what benefits calculating the return on investment for your software projects?

ROI is one of the main formulas by which you can shape the direction of business development and determine where to move the company, so it does not run out.

  • Helps you to know when and how you can get further development of your products.
  • Allows you to speak clearly to stakeholders about the ROI generated from these investments in tangible form or through efficiencies.
  • Enables you to know when you are at risk that you should stop or undo any decisions that may not be in the best interest of your business according to the economic condition of the market.
  • Gives you a complete sight of your project’s benefits and determines the project’s profitability.

How Can You Measure ROI For Software Projects?

Methods for measuring ROI vary according to the type of software. Therefore, the software you develop will determine how you can measure ROI for software projects.

Business Process Software

Software development projects aim to improve internal business processes and the company’s workflow. To measure the ROI for your business processes software, list all the fields in which you think you can generate revenue, reduce expenses, or improve customer service with this software. Thus, you will consider the achievable goals using an ROI software calculator for the business processes software. Calculate the following points:

  • Cost of the software operations.
  • Increasing revenue chances by getting done deals with the same number of employees or improving the likelihood of getting more clients.
  • The extent of the development and growth of your sales efficiency.
  • Associated low risk with anticipating problems, avoiding them sooner, or managing crises.
  • Acquiring new leads rate and retaining existing ones through an improved customer experience.
  • The saved time, energy, and resources after enabling data integration for your business.

Commercial Software or SAAS

SaaS companies (also known as software as a service) build software to service a particular customer. This software aims to increase your revenue as it is your primary source of income for the company. 

In SaaS companies, you can measure the ROI in sales as revenue in MRR or ARR subscription terms. In addition, your clients measure the ROI of your software by some criteria.

What do you think, SaaS vs. Custom Software: Which is Best for Business?

A combination of these criteria will measure software ROI:

  • Saved hours for the teams/roles across your company
  • Increased opportunity to get more leads and done deals.
  • Improved customer service increased the likelihood of retaining, growing, or gaining net new clients.
  • Rapid problems anticipation and solving them and facing risks.

Return On Investment ROI Formula For Software Development

You can calculate ROI simply and uncomplicatedly by taking the project’s actual or estimated income and subtracting the actual or estimated costs. The resulting number is the project’s total profit or expected profit. Kapsys offers a simple formula for ROI as follows:

ROI = (Net Profit / Cost of Investment) x 100

Also, there’s another form of ROI written in Project Management. It is similar to the previous formula but with slightly different conditions, as follows:

ROI = [(Financial Value – Project Cost) / Project Cost] x 100

roi software

Return on Investment – 5 Measurable Key Performance Indicators

You can measure ROI for software projects by five measurable factors, as follows:

  • Sales: If your business sales increase after implementing custom software, this is under the business benefits of custom software development.
  • Efficiency: If your employees have become more efficient after the custom software deployment, so, it is the custom software development impact that improves efficiency.
  • Production: Automating repetitive tasks allows employees to focus on essential tasks such as sales and marketing, resulting in increased productivity. Check Measuring Productivity of Your Software Development Team out!
  • Processes: You can examine the cost of performing these processes and compare the efficiency before and after using custom software. The positive outcome will be the ROI software.
  • Savings: It would help you examine your costs to see the company’s new software’s direct and indirect cost savings; this is also a software ROI.

ROI for software projects: Conclusion

ROI for software projects is an essential factor to consider when investing in customized software. Calculating the return on investment for software development requires a comprehensive view. 

If you are already planning to develop a new SaaS product, but without measuring the ROI for software development, you may be missing a lot of steps needed to develop your business. 

Calculating ROI for custom software development is better and getting a positive investment return.

Measuring the ROI of your software spending can be challenging to calculate, but you should do your best to do so. 

Suppose you find it challenging to make a decision; in this case, you can contact Kapsys as a custom software development services provider. We can tailor the software to meet your business requirements and suit your needs for business development and employee performance. Also, you can get some help to calculate your ROI software projects.