When a client approaches a software provider, they usually have two major things in mind; the first one is the price, and the second one is the quality of the solution they’ll get.
Unlike the offline ecosystem, where you can physically measure the inputs and outputs, investing in a software solution might appear somewhat blurry. Every sane businessperson – and our goal is to try and work only with the sane ones – wants to know how the software in question will upgrade their business operations.
That’s why we at BrightMarbles Group Holding (BMGH) like to explain to our leads what return on investment they can expect once they become our clients.
This article discusses and compares different calculations and components of ROI in software development services. As usual, we also share some in-house tricks of the trade that work best for us.
What Is Return on Investment?
Return on Investment (ROI) is a profitability metric that shows how much money an investor will earn upon an investment.
We calculate ROI by deducting the cost of investment from the gain of investment and dividing that number by the cost of investment. In other words:
ROI: (Current Value of Investment – Cost of Investment)/Cost of Investment x 100
If a business invested $10000 in a software solution and made the net profit of $15000, it has earned $5000. The ROI here is 150%.
ROI is expressed in percents so that you can easily compare various investments and their performance.
So far, everything seems smooth and straightforward. Well, the business world would be way too simple if things were that plain.
Bear in mind that ROI is only one measure we need to factor in business operations. For now, let’s continue breaking down this concept into smaller parts; later in the text, we’ll explain why relying solely on ROI is not enough to make sound financial decisions.
BM Insight: We often work with startups to help them elevate their product and business. Our special approach to software development business lifecycle is particularly mapped out with such ventures in mind. Our experts typically know at once what stack will make the most of each new startup we partner with. Contact us to get a customized offer and software project estimation.
How Is ROI a Useful Metric?
ROI is a practical measurement for three main reasons:
- Ease and simplicity of use. It’s a simple mathematical formula, easily processed and understood by everyone. Positive ROI means that an investment is justified per se. Negative ROI implies that you shouldn’t make that investment.
- Time-based comparability. ROI calculations for previous investments can help business owners decide on their future deals. If you know from your own or other people’s experience that putting money into a certain project has yielded positive ROI every time, you’ll probably want to repeat the operation.
- Landing the best investment. Like the above, when you have several ROI calculations for different projects at your disposal, estimating which investment will bring a higher gain is more reliable.
All these factors are relevant and important to clients aiming at a software provider to advance their business services. Unlike tangible products, where all the elements are calculated more straightly, ROI for software solutions is not always as clear.
Let’s see one of the possible scenarios on a practical business example.
ROI for Shoe-Selling Software
In one of our previous blog posts – The Role of Proof of Concept in Software Development – we’ve defined the differences between the proof of concept, prototype, and minimum viable product (MVP) using an example of a plugin for an online shoe shop.
Now, let’s use the same instance, but from a client’s point of view.
So, you have an online shoe-selling store, with a security payment plugin and other necessary add-ons. You’ve realized that your competitors have integrated some cutting-edge tools and their traffic and sales have increased. You want to improve the existing website and add some innovative features, such as automated email follow up messages, AI-based chatbots, or some extra selection options.
As you approach a software development company – say, BMGH – they should give you an overview of the potential business collaboration. Within this presentation, you’re supposed to receive a financial estimate of the workforce and time necessary to complete those improvements to your e-store. Once you know how much it’ll cost, you’ll decide whether you can afford that investment. When those add-ons are implemented, you can wait for one or two quarters to calculate whether and how much your sales have increased. Now that you know your net profit and costs over a specific period, you’ll know whether ROI makes sense.
Let’s delve into a hypothetical scenario for better clarity.
Imagine you own an online shoe-selling store, ShoeSpectacular.com. Over the past year, without any new software integrations, the net profit was $100,000. You’ve observed that competitors with advanced features have increased their sales, and after some market research, you decide to invest in some software upgrades
- Annual Net Profit: $100,000
After a detailed analysis and consultation, BMGH quotes a price of $20,000 for several software enhancements. These include automated email follow-ups, AI-based chatbots, and added selection options. You decide to invest in these features hoping it will boost your sales.
A year after implementing the software enhancements, you notice:
- Annual Net Profit with New Software: $130,000
- Additional Earnings: $30,000
- Investment: $20,000
- Net Gain: $10,000
In this hypothetical scenario, ShoeSpectacular.com’s investment in the software upgrades delivered a 150% ROI. This means that for every dollar invested in the software upgrade, there was a $1.50 return.
This example simplifies the intricacies of real-world scenarios but serves as an illustrative representation of how ROI can be visualized and calculated for software enhancements.
BM Insight: Pitching is an important part of business in every field, and the IT industry is not an exception. Besides having some of the most experienced software engineers in the niche on our payroll, we display several seasoned sales specialists. When a client approaches our company, we always start with a comprehensive pitch. Read more about our special pitching powers in the blog post The Art of Crafting a Software Development Project Pitch.
Offering Tangible Assurance: How We Instill Confidence During Negotiations
In the fluctuating digital landscape, clients rightfully demand reassurance, especially for ROI. At BrightMarbles Group, we’ve incorporated several steps in our negotiation process to alleviate concerns and bolster client confidence:
- Showcasing Past Projects. We present a curated portfolio of our most successful projects that align with the client’s industry or needs. By demonstrating our previous successes, we provide tangible evidence of the potential positive returns they can expect.
- Client Testimonials and Case Studies. Authentic feedback from our previous clients acts as an endorsement of our capabilities. Case studies, in particular, delve deep into how we tackled challenges and achieved tangible results, allowing prospective clients to envision similar success.
- Clear Documentation. We offer clear contractual clauses that highlight our commitment to the project’s success. This might include specific deliverables, timelines, and other milestones that we commit to achieving.
- Performance Guarantees. While software development is a dynamic field and absolute guarantees are challenging, we can provide performance guarantees. These could relate to system uptime, user load handling, response times, and more.
- Post-launch Support. To further assuage any concerns, we emphasize our commitment to post-launch support. Ensuring the software runs smoothly and adapting as necessary can heavily influence ROI, and we make it clear that we’re partners in this journey.
Is ROI Completely Reliable?
We’ve highlighted above the benefits of calculating ROI for general business purposes. Still, time is an important component that must be included in calculating return on investment.
Using the e-store example above, let’s say that the client had two similarly attractive offers for their software needs: one was BMGH, and the other was, say, OTC. The premise is that both companies would provide the same number of mobile developers, working at the same rate.
The former company offered to finish all the additional features within four months, while the latter could complete them in eight months’ time. From the client’s point of view, the first offer is more appealing because they could integrate the features sooner, starting to generate more revenue as soon as possible. Either way, they should calculate their ROI within a specified time after the features have been included in the e-store.
What Influences ROI’s Reliability
While ROI serves as an invaluable metric for businesses, the following variables largely influence its reliability:
As mentioned, the duration of a software project plays a crucial role. For instance, two offers might seem equivalent in cost and features, but if one solution can be integrated sooner, it means the potential for earlier returns. The faster a company can capitalize on new software tools, the sooner they can start realizing a return on that investment.
High-quality development leads to fewer bugs, better user experiences, and reduced costs related to fixes and patches. An initially cheaper solution might end up costing more in the long run if it’s compromised by issues.
As businesses evolve, their software requirements will change. Hence, investing in scalable solutions that can grow with your business is an asset. While it might mean higher initial costs, it’s likely to prevent substantial future expenses related to system overhauls or replacements. Scalable solutions also adapt to increasing user loads, ensuring a consistent user experience and uninterrupted service.
Immediate post-launch troubleshooting and regular updates differentiates a system that continuously evolves to meet changing business needs from the one that sleeps. Consistent support translates to enhanced user satisfaction, leading to a better ROI.
Market shifts, technological advancements, or global events can unpredictably affect the ROI of software investments. If any of these happens, businesses must remain agile, adapting their strategies in line with these unforeseen variables.
Based on the above, ROI is a vital metric but an isolated one. It’s intertwined with several aspects of software development and deployment. Relying solely on ROI without considering these interconnected factors can paint an incomplete picture of an investment’s true value.
BM Insight: Reliable and professional IT companies must hire various experts to deliver speckless software tools and additions. In addition to qualified, seasoned software engineers, you need skillful quality assurance specialists, legal and finance experts, HR-aces, marketing gurus, and all other necessary positions that help softdev operations thrive. In our article The Entourage of IT Projects: The Binding Tissue of IT Software Development, we cover all the professions that one tech company needs to deliver speckless, optimal-ROI solutions to their clients.
How to Up Your ROI
You can never calculate your ROI to the last cent. However, you should be able to calculate a relatively accurate return on your investment, based on the software provider’s track record, reputation, and direct communication. During the development stage and in the aftermath, when the solution is up and working, pay attention to the following three features to maximize ROI:
- Inspect your market. We’ve partially touched on this topic when presenting the shoe e-store above. Examine your market – both the rivals and customers – before hiring a software company. What have the other similar businesses done to improve their traffic and profits? How can you match their offer and upgrade your assortment of services? Apart from the competitor analysis, ask your registered and new buyers what features they’d like to see on your app/website.
- Always use analytics. Fast forward to the post-implementation period: what are your revenue metrics showing? Has there been a surge in sales in the given period? What about the website traffic, first-time buyers, recurring customers, and the overall retention rate? Use the website analytics tools and your financial reports to see whether your business indicators are better now than in the period before the new software implementation.
- Engage in Continuous Feedback. Implement mechanisms to continuously gather user feedback. Users often provide insights into bugs or suggest potential features that can enhance their experience. Addressing these can lead to increased user satisfaction and, consequently, a higher ROI.
- Toy with ideas. Trial-and-error is often time- and asset-consuming. However, it typically yields some innovative solutions that you otherwise wouldn’t test. For instance, if the introduction of an AI-enhanced chatbot hasn’t improved the website or in-app customer experience, ditch it and redirect the saving to another, more useful feature.
- Leverage Cloud Solutions. Cloud platforms can optimize costs by scaling resources according to demand. Instead of investing heavily upfront, use cloud solutions to pay for only what you use. This approach can improve ROI by optimizing operational costs. Generally speaking, scalability is a great asset for every softdev company and its clients because it allows for limitless adaptability for both sides.
Decoding ROI: Perspectives from BrightMarbles Group Leaders
No one understands the nuances of software development and its corresponding return on investment (ROI) than industry experts. In the next few paragraphs, the leaders of BrightMarbles Group offer their unique perspectives on how to maximize ROI from different angles of the software development lifecycle.
The Long-Term Vision
Boris Berat, CEO at BrightMarbles Group
“In my experience, clients are often concerned about the initial cost of software development. My two cents thereof: always consider the bigger picture; an upfront investment might seem hefty, but the dividends it pays in efficiency, customer satisfaction, and competitive advantage can far outweigh the initial costs, generating the desired ROI.”
Prioritizing User Experience
Nevena Nemeš, CXO at BrightMarbles Group
“From a customer experience standpoint, intuitive software design can drastically enhance user retention rates, leading to a higher ROI. It’s not just about building software but crafting software that people love to use. User feedback and constant iterations ensure that our software solutions remain user-centric and relevant in the long haul.”
Efficiency in Delivery
Miloš Milić, Quality and Delivery Director at BrightMarbles Group
“Timely delivery ensures that the software can go to market faster, leading to quicker returns. It’s essential to have a clear scope and efficient processes in place. Our teams work diligently to adhere to timelines without compromising on quality, benefiting our clients’ bottom lines.”
The Security Imperative
Branko Džakula, CISO at BrightMarbles Group & COO and Co-founder at UN1QUELY
“Security should never be an afterthought. Ensuring protected software from the start can prevent costly breaches and maintain customer trust, indirectly improving ROI. It’s a holistic approach; beyond the code, we also focus on staff training and constant vigilance to keep our solutions robust and secure.”
Future-Proofing with Technology
Sanel Jovanović, IT Director at Brightly
“Adopting the latest technologies and providing scalable software can make future transitions smoother, ensuring a consistent ROI as the business grows. It’s all about foresight. By anticipating future needs and integrating flexibility into our software solutions, we set our clients up for sustained success.”
In summary, maximizing ROI in software development isn’t about a singular approach but a composite of strategic decisions that span design, delivery, security, and scalability. As evidenced by the insights from BrightMarbles Group’s leaders, understanding and optimizing each of these elements is key to ensuring software not only delivers value but also drives business growth.
Navigating Challenges: What If Your ROI Doesn’t Meet Expectations?
Every investment carries an inherent risk, including when investing in software solutions. At BrightMarbles Group, we prioritize complete transparency with our clients. While we always aim for the highest quality standards, we’re also aware that, occasionally, outcomes might deviate from initial expectations.
If a client feels that their ROI isn’t aligning with their projections, we take a systematic approach:
- Analysis & Evaluation: Our first step is to understand the root cause. Are there any weaknesses in the software solution? Could there be integration issues or challenges with the user experience?
- Open Communication: We maintain a candid dialogue with our clients about their concerns, sharing our findings transparently. It’s a moment for us to listen, learn, and adapt.
- Strategy Adjustment: Based on the feedback, we can tweak our strategy, offering additional support or modifications to optimize the software solution.
- Long-term Commitment: Our mission goes beyond just delivering software. We’re committed to ensuring that our clients enjoy sustained benefits from our solutions. If further support or training is needed, we’re here to assist.
Only such a comprehensive and knowledge-based approach to ROI in software development sets the stage for continuous and fruitful softdev partnerships.
For every contemporary business, implementing innovative software cobbles the path to intensive lead generation, better performances, and, eventually, higher revenue. While doing so, every entrepreneur must approach this endeavor with utmost financial care. As such investments are mostly intangible at first, software development companies should guide their clients all the way, from scratch to fully deployed solutions. When both clients and software providers approach investments in software development as explained above, the former are typically satisfied with their ROI.
BrightMarbles Group Holding prides itself on tailored business partnerships and tech investments that bring positive changes to the world around us and keep all the parties contented, from stakeholders to our employees. Call us to learn more about our special softdev and ROI management method.
Pavle Bobić, BrightMarbles’ resident wordsmith extraordinaire. With a passion for wordplay and a keen eye for eye-grabbing marketing materials, Pavle has been producing top-quality web content and copies for fintech, IT, and eCommerce since 2013. Now he keeps sharing his wealth of experience and expertise as part of the BrightMarbles team, making an impact by creating distinguished content across various digital channels.