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Measuring ROI: The Tangible Benefits of Investing in Custom Software

Measuring ROI The Tangible Benefits of Investing in Custom Software
Business
– September 6, 2023

In today’s competitive marketplace, businesses need every advantage they can get. One of the best ways to improve your bottom line is to invest in custom software. Custom software is designed specifically for your business, so it can help you automate tasks, improve efficiency, and boost customer satisfaction. But how do you measure the return on investment (ROI) of custom software? In this article, we discuss the tangible benefits of investing in custom software and how to measure its ROI.

 

What is Custom Software ROI?

Custom software ROI, or return on investment, is the financial benefit that a business realizes from investing in custom software. It is calculated by subtracting the cost of the software from the benefits it generates and then dividing that number by the cost of the software.

The benefits of custom software can be both tangible and intangible. Tangible benefits are easy to measure, such as cost savings and increased sales. Intangible benefits are more difficult to measure, such as improved customer satisfaction and increased productivity.

To calculate the ROI of custom software, you will need to:

  • Estimate the cost of the software, including the development, implementation, and maintenance costs.
  • Estimate the benefits of the software, both tangible and intangible.
  • Subtract the cost of the software from the benefits to get the net benefit.
  • Divide the net benefit by the cost of the software to get the ROI.

The ROI of custom software can vary depending on the specific software, the business, and the way the software is used. However, in general, custom software can provide a significant ROI for businesses that are able to use it effectively.

 

Tangible Benefits of Investing in Custom Software

Cost savings

Custom software can help businesses save money in a number of ways, such as:

  • Automating tasks: This is one of the most common ways that custom software can save businesses money. By automating tasks, businesses can free up their employees to focus on more important tasks. This can lead to increased productivity and efficiency, which can save businesses money in the long run.
  • Reducing errors: Custom software can also help businesses reduce errors. This can be done by providing employees with the right tools and information, as well as by automating processes. Reducing errors can save businesses money on rework and repairs.
  • Improving efficiency: Custom software can also help businesses improve efficiency. This can be done by streamlining processes, eliminating unnecessary steps, and automating tasks. Improving efficiency can lead to lower operating costs and increased profits.
  • Eliminating the need for expensive third-party software or services: Custom software can sometimes replace the need for expensive third-party software or services. This can save businesses money in the long run.

Increased sales

Custom software can help businesses increase sales in a number of ways, such as:

  • Providing a better customer experience: Custom software can help businesses provide a better customer experience by making it easier for customers to do business with them. This can be done by providing a more user-friendly interface, offering more features, and personalizing the experience for each customer.
  • Targeting marketing campaigns more effectively: Custom software can help businesses target their marketing campaigns more effectively by providing insights into their customers’ behavior and interests. This can lead to more conversions and increased sales.
  • Improving the efficiency of sales processes: Custom software can help businesses improve the efficiency of their sales processes by automating tasks and providing employees with the right information. This can lead to more sales and increased profits.

Reduced expenses

Custom software can help businesses reduce expenses in a number of ways, such as:

  • Reducing the need for manual data entry: Custom software can automate data entry tasks, which can save businesses time and money.
  • Automating billing and payments: Custom software can automate billing and payments, which can reduce errors and save time.
  • Improving inventory management: Custom software can help businesses improve inventory management by tracking inventory levels, forecasting demand, and generating purchase orders. This can help businesses reduce waste and spoilage, and save money.
  • Managing compliance requirements: Custom software can help businesses manage compliance requirements by tracking regulations, generating reports, and providing insights into compliance risks. This can save businesses money on fines and penalties.

Improved productivity

Custom software can help businesses improve productivity by:

  • Providing employees with the tools they need: Custom software can provide employees with the tools they need to do their jobs more efficiently. This can include things like CRM software, project management software, and accounting software.
  1. Streamlining processes: Custom software can help businesses streamline their processes by automating tasks and eliminating unnecessary steps. This can save employees time and effort, and improve productivity.
  • Providing access to data and insights: Custom software can provide businesses with access to data and insights that can help them make better decisions. This can include things like sales data, customer data, and financial data.

Enhanced competitive advantage

Custom software can help businesses gain a competitive advantage by:

  • Automating tasks that their competitors are not automating: This can give businesses a leg up on their competitors by allowing them to do things more efficiently.
  • Providing a better customer experience than their competitors: This can attract and retain customers, and give businesses a competitive edge.
  • Accessing data and insights that their competitors do not have: This can help businesses make better decisions and stay ahead of the competition.
  • Being more innovative than their competitors: Custom software can help businesses innovate by giving them the flexibility to develop new products and services.

 

How to Measure Custom Software ROI

Tangible benefits

Tangible benefits are the easiest to measure because they can be expressed in monetary terms. They include things like:

  • Cost savings: This is the most common tangible benefit of custom software. For example, a custom inventory management system can help businesses reduce stockouts and overstocking, which can save them money on inventory costs.
  • Increased sales: Custom software can help businesses increase sales by improving efficiency, providing a better customer experience, or targeting marketing campaigns more effectively.
  • Reduced expenses: Custom software can help businesses reduce expenses by automating tasks, eliminating errors, and improving efficiency.

Intangible benefits

Intangible benefits are more difficult to measure because they cannot be expressed in monetary terms. They include things like:

  • Improved customer satisfaction: Custom software can help businesses improve customer satisfaction by providing a better experience, such as making it easier to contact customer support or providing more personalized recommendations.
  • Increased productivity: Custom software can help businesses increase productivity by automating tasks, reducing errors, and providing better insights into data.
  • Enhanced competitive advantage: Custom software can help businesses gain a competitive advantage by automating tasks, providing a better customer experience, or being more innovative.

Net present value (NPV)

NPV is a financial measure that takes into account the time value of money. It is calculated by discounting the future benefits of the software to the present value. This means that the benefits of the software are not just calculated based on their face value, but also on the fact that they will be received in the future.

For example, if a custom software is expected to save a business $10,000 per year for five years, the NPV of the software would be less than $10,000 because the $10,000 received in the future is worth less than $10,000 today.

Internal rate of return (IRR)

IRR is a financial measure that tells you how long it will take to recoup the initial investment in the software. It is calculated by finding the discount rate that makes the NPV of the software equal to zero.

For example, if a custom software has an IRR of 10%, it means that the business will recoup its initial investment in 10 years.

Return on assets (ROA)

ROA is a financial measure that tells you how much profit the software generates relative to the assets invested in it. It is calculated by dividing the profit by the assets.

For example, if a custom software generates $100,000 in profit and has $1 million in assets, the ROA would be 10%.

 

By investing in custom software, you can gain a number of tangible and intangible benefits, such as cost savings, increased sales, reduced expenses, improved productivity, and enhanced competitive advantage. To measure the ROI of custom software, you can use methods such as net present value (NPV), internal rate of return (IRR), and return on assets (ROA). If you are considering investing in custom software, Pahappa Limited can help you every step of the way. Contact us today to learn more about our custom software development services.

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