How do you measure ROI for building custom software for the automation of your business process?

Custom software development is a very important aspect for any business. Another important aspect is the automation of business processes. Businesses can choose to automate their processes with the help of custom software development. Businesses can also choose to introduce custom software for various other purposes viz. sales, marketing, production, customer care etc. However, it needs to be noted that, custom software development will demand a lot of investment. The amount of investment depends on the app or software being developed and so the ROI (return on their investment) too would depend on it. The custom software will have myriad of benefits that can be related to ROI, but it’s not always necessary that all these benefits will be relevant to your business. However, to measure the ROI there are a few steps guiding you to know whether the custom software will give you the expected ROI or not.

Basically, custom software will be needed if the business is planning to reduce the costs and increase its revenue. Thus ROI = (Reduced cost + Increased Revenue)/Project cost OR ROI = (Gain – the cost of investment)/Cost of Investment. Moreover, the business also needs to set its expectations from the custom software so as to assess the software’s success. While automating your business processes through custom software development, you need to decide upon the key performance indicators (KPI’s) for the software’s performance.

ROI is a very important aspect when it comes to evaluating its success and contribution of software or an application in business automation. Though measuring ROI for such an application can be difficult, it is not impossible. Evaluation of custom software has to be done just like any other aspect of business viz. through management and reporting tools. Let’s have a look at some of them

1. Development cost

You need to decide upon the development cost or investment you will need to make. Once you’ve decided upon your budget, you need to decide whether you’ll be using a waterfall method or agile methodology for the development process. MVP needs to be developed to eliminate wastage of resources and you also have an MVP on time which can be tested for bugs or issues.

2. Maintenance cost

“Bug fixes” are critical for any software or app. Hence, regular upgrades and ongoing support & maintenance will have to be done for software. Bugs are normal to arise while upgrading the software and hence there will arise a need for constant support & maintenance as well as constant upgrades so as to keep up with the latest trends and technologies. This will require a full-time development team or an outsourced team. This is another aspect of investment because the development team whether in-house our outsourced needs to be paid. Moreover, the business also needs to note that, the technological upgrades will also require investment at some point in time.

There are tangible and intangible KPI’s of custom software which needs to be considered along with measuring the ROI. Intangible benefits, however, become a little bit more difficult when it comes to measuring them in numbers.

Some of the tangible KPI’s can be listed as below:

• Will introducing custom software result in increased sales for the business? If yes, it is definitely worth introducing. But, one also needs to consider what factors will result in increased sales after the software is introduced. Factors viz. direct customer-reach also plays a vital role in increasing sales.
• Is the efficiency of processes being automated increasing? Is the number of errors being reduced? Comparative study of time taken and errors made can be done before and after the introduction of custom software. Moreover, the cost involved in carrying out these processes as well as the efficiency attained before and after the introduction of software can also be studied. If the results are positive, the introduction of custom software can be considered a success.
• The time taken by the customers to reach your executives and thus improving your customer service will result in increased customer retention and customer loyalty. This will further help in business growth because happy customers are able to refer the business and thus bring in new customers for the business.
• After automation, can the dedicated resources be reallocated to more productive tasks? If the answer is yes, these dedicated resources can be reallocated to other more productive tasks which will further increase the efficiency of the employees thus resulting in decreased hours of unproductive or monotonous work and increased efficiency.
• With the automation of various processes, the production will increase and the employees can be reallocated to various other tasks viz. business development or innovating new ways for customer interaction and increased customer-reach. This will result in customer retention and customer delight.

Some of the intangible KPI’s which even if not quantifiable for ROI – can’t be overlooked. They need to be considered while evaluating the success of your custom software. These may include:

• Having a competitive edge over your competitors. Thus able to do a lot of things swiftly and accurately as compared to your competitors.
• Improvement in employee morale and satisfaction.
• Increase in customers’ delight.
• Improved customer service.
• Having the ability to differentiate your business from your competitors due to automation and custom software.
• Improvement in goodwill in the market since your company will be projected as a forward-thinking company and one that always keeps up with the latest technologies.
• Improvement in the projected image of business as a company that keeps on improving their processes and cares about their customers and employees etc.

So once the estimation process is complete and you have calculated the development, service & maintenance as well cost of upgrading and advantages as well as disadvantages, the ROI calculation can be carried out. Along with this, the business also needs to set yearly benchmarks to compare whether the targeted revenue/profit has been achieved from the introduction of custom software or not. These benchmarks help a business in knowing its current and projected positions and help business in deciding the future path. If there has been any deviation, the business can work on it and get back on track to achieve the targeted revenue without failing in the long term. At times, it is possible for a business to achieve breakeven at a very early stage after automating its processes whereas, at times it might take longer for some businesses to achieve the breakeven and turn into a profitable business after introducing custom software. There might be cases of failure if the introduction of custom software is not done correctly or if the software is not built as per the needs of the business.