[vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid”][vc_column_text]Calculating Return On Investment (ROI) provides insights into how well a product or service is doing. Was the investment made into building the product or service worth it? The same question applies to software deployment. When a business decides to buy into software development, it is not creating an expense but rather making an investment.
Building any software, such as a mobile application, includes a financial investment. Software ROI is a metric that measures the benefits generated from a software development project or implementation against the costs incurred. It’s important to track because it can help make decisions on whether to continue, pause, or scrap a project and demonstrates the success or lack thereof to stakeholders. Businesses should be aware of many factors that affect software ROI, such as user training, support, user adoption, and more, to maximize returns.
However, as important as calculating ROI is, traditional ROI calculation methods and factors are not the most favorable for companies who want to track the performance of their software in creating brand awareness and keeping up with the market competition. This is more so because of the lack of flexibility offered by ROI calculations.
Hence, here’s what to know about the importance of ROI for Software, how effectively measuring it can provide a holistic view of a company’s technology investments, and how the traditional methods of ROI calculations lack, which makes its assessment of a software’s performance fairly limited.
What is Software ROI?
Return on Investment is simply a measure of the profitability of an investment. In other words, ROI indicates how well something is performing.
For custom software, calculating ROI includes factors such as calculating the return on the purchase and the initial cost of investment. Custom software development is done for various reasons: gaining a competitive edge in a specific industry, improving operations, increasing scalability and reach, etc. The aim is to generate revenue that balances the costs invested in the project of building the application.
ROI software does just that – it lets you know how profitable the project currently is or will be in the future. The average number of software applications used at enterprise companies is an impressive 288. Measuring the impact and usefulness of these implementations is crucial for making informed business decisions.
However, as crucial as it has become for businesses to digitally transform their operations, the benefits of doing so are usually not immediate. The performance of the software is tracked through various methods for a while after deployment to truly gauge its impact on operations. The biggest and perhaps the most important advantage of digital transformation of any kind is increased customer satisfaction. In more ways than one, a business invests in the creation and deployment of software to increase its brand value. Factors like these are not considered when calculating ROI, which limits the effectiveness of ROI in determining the actual value of your software.
Benefits of Calculating ROI for Software
Calculating ROI is still vital to have some idea of the performance of the software. Generally, calculating ROI helps decide the future direction of a business. For software development particularly, calculating ROI is useful for these reasons:
- It helps justify or explain the investment in the development project to stakeholders with tangible numbers and results.
- It helps realize the direction and scope of the development projects, including what improvements can be made.
- It helps realize when the project is more of a loss or a dead end for you and whether the project should be abandoned or paused for the time being.
While the pressure to create a digital footprint steadily increases, the economic conditions of both the local and global markets can be an important factor in deciding how much to invest in digital transformation and when. A report by Blissfully found that the average company wastes $135,000 yearly on software applications they don’t need or use.
Calculating the ROI achieves significant oversight of the project, and its effects on the business’s profitability, thereby helping companies make the right investment.
How is ROI for Software Measured?
Calculating ROI for software includes two major parameters: the gain from the investment and its cost. However, this is not entirely accurate because technology integration in a business runs deep. It affects nearly every aspect of an organization, from efficiency to business relationships. For this reason, traditional methods and factors used for calculating software ROI are making way for calculations that allow for more nuance. For startups, the focus is less on profits and more on growth in terms of building a loyal customer base. Customer satisfaction is an important factor for consideration for growing companies.
Nevertheless, creating an ROI calculation report is necessary. For the best estimation, creating two ROI calculation reports helps to understand the business’ ROI range: one ROI calculation report for the lowest amount of ROI that could be generated and one report for the highest possible ROI that can be reasonably expected.
Software ROI Can Be Improved
There are numerous ways to increase a low or struggling ROI, especially with the correct implementation of software. The following are some ways to do this:
- Develop a training program for the end-users to teach them how to make the most out of a new software tool.
- Create an onboarding plan for a smooth digital adoption.
- Plan for on-demand user support as the users learn to navigate the new system and how it impacts their day-to-day tasks.
Most importantly, change how you look at the spending – it’s an investment, not an expense. There’s increasing pressure to keep up with the fast-paced nature of our digital world, and digitizing your company’s process is a smart decision. Therefore, it’s wise to invest more time and resources in improving software ROI rather than giving up on it entirely.
The Common Negligence of ROI Software
Creating parameters for technology spending has been an ambiguous and somewhat neglected area until very recently. As increasingly more companies undergo digital transformation, understanding the impact of technology on a company’s business model – the good and the bad – will become urgent. The scope of the application economy is being realized, and its impact on individual companies and businesses can be determined through software ROI.
Technology has always been a risky investment – it’s important to remember that and not get caught up in the hype of the newest digitalization trend. Do your research, calculate the risks, and decide whether certain software development or implementation is right for your business. After all, it’s your responsibility to safeguard your company’s future.
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