ROI for Custom Software

Do you calculate return on investment (ROI) for your project client?


Problem:
It is hard to convince the clients
It is hard to convince the clients about the cost.
Cost for building a software in a kind of investment. Usually a long term one.
If a client expects he starts to gain profit and break even in a very short time, I can say it is quite impossible.

Bosses can spent millions of dollars to buy or rent a shop or office.
Some bosses are willing to pay millions to hire an expert for developing AI but some not even willing to pay recruitment firm to find a good talent.

A little history
I have experience in real estate industry for a short period.
I worked with teams of agents. The leader taught us to use calculator to calculate ROI for a property investment scheme.
We wrote the figures on a form, demonstrate the schedule which promised guarantee returns.
It successfully convinced some people.
I used my Excel skill and converted the formula and put in into a spreadsheet that produce results in a few seconds.
We printed out the form. It was very efficient.
Our team broke previous year records to become top sales for that project and also beaten the developer's team.

So I am thinking it could be a good strategy to use ROI to convince the potential clients.

I can separate 2 types of solutions.

Solution 1: Build software for internal use
Solution 2: Build software for general public

For the latter, I expect the client could see the results very soon.
Once the software is in production, it will starts making money.
This is usually a Saas project or apps that a company can sell as a finish product or services.

For the former, this is more tricky and the client would not immediately see the results.
This is usually a digitalize of traditional workflow or make manual work become more efficient.
The staffs who use the new software need some time to learn and adapt.

Ultimately, it all depends whether the client has a vision to success and believe the software is worth to invest.
What we as software developer can do is to help them to make decision.

aeric said:

Do you calculate return on investment (ROI) for your project?
View attachment 165248

Problem:
It is hard to convince the clients

Click to expand...

Sometimes yes, sometimes no.
I find it usually depends on their seriousness to move their business forwards, and their budget, oh boy their dam budget. The amount of times that I first speak to potentially new clients (over the phone) and they mistakenly believe that they can have an entire business solution developed for less than one thousand pounds is just unbelievable. I personally find that the main sticking point is budget. Potentially new clients that have already done their due diligence (cost wise) are a lot easier to convince than those who have not done their due diligence.

aeric said:

It is hard to convince the clients about the cost.
Cost for building a software in a kind of investment. Usually a long term one.
If a client expects he starts to gain profit and break even in a very short time, I can say it is quite impossible.

Click to expand...

I refer back to my previous answer your honour lol

aeric said:

Bosses can spent millions of dollars to buy or rent a shop or office.
Some bosses are willing to pay millions to hire an expert for developing AI but some not even willing to pay recruitment firm to find a good talent.

Click to expand...

I agree, but before I even go to meet any potentially new client, we speak on the phone and I ask them to have a budget in mind then double it, as creating a bespoke software solutions for businesses is not as cheap as they hope it will be.

aeric said:

A little history
I have experience in real estate industry for a short period.
I worked with teams of agents. The leader taught us to use calculator to calculate ROI for a property investment scheme.
We wrote the figures on a form, demonstrate the schedule which promised guarantee returns.
It successfully convinced some people.
I used my Excel skill and converted the formula and put in into a spreadsheet that produce results in a few seconds.
We printed out the form. It was very efficient.
Our team broke previous year records to become top sales for that project and also beaten the developer's team.

Click to expand...

Interesting history, you used your knowledge to help the team improve their performance.

aeric said:

So I am thinking it could be a good strategy to use ROI to convince the potential clients.

I can separate 2 types of solutions.

Solution 1: Build software for internal use
Solution 2: Build software for general public

Click to expand...

So true and 100% correct.

aeric said:

For the latter, I expect the client could see the results very soon.
Once the software is in production, it will starts making money.
This is usually a Saas project or apps that a company can sell as a finish product or services.

Click to expand...

I've personally turned down every opportunity (even when I've had meetings with the clients) to create apps or software for resell purposes (Solution 2).

aeric said:

For the former, this is more tricky and the client would not immediately see the results.

Click to expand...

I personally only make bespoke app and software solutions to help my clients run their businesses more smoothly and efficiently. After the first meeting, I'll know what their general budget is, I personally only charge on a per project basis. It's up to me to convince any potentially new clients of the benefit of having a 100% bespoke solution developed for their business, I always layout the strong benefits of doing so. The only pit fall to the potentially new client is the fact that it's not a cheap off the shelf solution so it will cost them thousands of pounds to develop. One huge positive is the fact that it will improve staff productivity and like I mentioned previously, it will help the business to run more smoothly and efficiently which is always a positive.

If clients are serious after I give them a quote for developing their solution, they usually say yes let's go ahead and start the project. That's when I received the 33% deposit necessary for me to start development of their app or software solution(s).

aeric said:

This is usually a digitalize of traditional workflow or make manual work become more efficient.
The staffs who use the new software need some time to learn and adapt.

Click to expand...

100%
I pride myself on making easy on the eyes, professional looking UIs that are extremely intuitive and simple to use for the end users (my clients). I always give lessons on how to use the software during development, and after the solution is deployed and running in their businesses. I'll also help via remote login sessions too.

aeric said:

Ultimately, it all depends whether the client has a vision to success and believe the software is worth to invest.
What we as software developer can do is to help them to make decision.

Click to expand...

Here here, well said Aeric

Now, it's time for you to start posting your brilliant web apps screenshots on the new B4X Fb group lol


That is a good business forum post by the way Aeric...

Peter Simpson said:

they mistakenly believe that they can have an entire business solution developed for less than one thousand pounds is just unbelievable

Click to expand...

I hope I can convince you to believe here clients expect a quarter or 1/10 of the amount you mentioned.

Ironically to say I get an enquiry last month and the potential client said cost is not an issue.
A few days later he texted me to ask what is the market price.
I told him the market price here in Malaysia is 12k to 15k per month and normally a project can takes 2 and up to 3 months.
I told him the cheapest I found in the market is 9k. I also told him I can adjust the price according to his actual system requirements.
I guesses he must be misunderstood me or actually shocked to learn about the actual market price.
I can say many people here really have zero knowledge on what they are talking.
However, I make the conclusion that the main reason I don't get the business is I am not talking to the right person, i.e the decision maker.

There are many differences between the 2 solutions I mentioned in fist post.

For general public app, even though the software can quickly generate some income, the cost to maintain it is much higher compare to solution 1.
The number of users can grow quickly and many issues can arise from different users.

For internal use app, maintenance can be lower as the number of users is relatively low. It can be much easier to manage.
I guess the client may not need to consider a server upgrade in near future.

I just drafted a spreadsheet before my dinner, to calculate ROI for internal use app.
I come out with a simulation to get the ROI to break even in 2 months.
I can tell the client to think conservatively by adding extra 1 month to let the staff get to use to the system before a real improvement take place.
So a client can invest 3 months time for the software development and get break even in 3 months.
Beyond that is business starts growing with profit multiply by factor of 3 or more.

Is Custom (Bespoken) Software Really an Investment?

"Custom, bespoken solutions...
It's the only real way for freelancers to earn serious money. But there's a catch."


Custom software is not a product — it's a service.
And actually, it's a service that often needs even more service.
Sometimes, it even needs additional money... to provide more service.


So can we call it a proper investment? Not exactly like gold or real estate.
This kind of investment isn’t about holding value over time. It’s an investment of time, that returns time — for the end user, and usually for a specific period.

What do I mean?​

From my experience, bespoken (custom-made) software makes sense in two main scenarios:

1. When no ready-made solution exists
   If a client asks for a solution that doesn't exist in the known market — then yes, I can confidently ask for "good" money. They’re asking for something unique, and I’ll build it uniquely.
2. When existing solutions are either overpriced or ineffective
   If there’s a solution out there but it's expensive or doesn’t really solve the problem well, then again — there’s value in what I can offer, and clients are more willing to pay a fair price.

But…


If a cheap and effective solution already exists?
Then there’s no way to compete unless you can prove that your custom solution is 1000x better — and even then, justifying a high cost becomes very hard.

The Hidden Risk​

Now here’s the real problem — and it’s rarely discussed:
Let’s say you build an excellent solution, you support it well, and you earn good recurring income every year.


Eventually, someone copies your idea.
Or builds something better, faster, or cheaper.
Technology evolves.
Ideas circulate.


At some point, your once-unique custom solution becomes generic —
a product, maybe even a cheap one.


That could be the end of your custom software service.
A quiet death...
And maybe, it’ll come sooner than you expect.

So… Is Custom Software Really an Investment?​

It depends.

• For the client, it’s an investment of time and money to save time or increase productivity — but it has an expiration date.
• For the developer, it’s a high-risk service business with short-term payoff and long-term uncertainty.

It’s not like investing in property. It’s not a passive asset.
It needs work, support, updates — it’s alive, until it's not.


So before calling it an “investment,” both sides need to understand what they’re really buying or building.

aeric said:

I hope I can convince you to believe here clients expect a quarter or 1/10 of the amount you mentioned.

Click to expand...

I don't need convincing about anything.
Different countries, different cultures, different lifestyles, different economies, different business ideals, different etc etc etc all mean different costs and different ways of doing business. but that's not why I responded to your original posts.

Good points @Magma

I see it as an investment.
An action of purchasing and raising a duckling that can lay golden eggs.

I can't comment on the longevity of the bespoke software project since I never work on one.
What I can say is I believe a good after sales service may help to keep a longer relationship with the customer.

As the example I mentioned above, the enquiry come from a company representative who can't make the decision. He has a vision to improve the business efficiency but most or all the time stopped by the real founder who is use conservative way to run his business. I was told that the staffs don't even use Excel to document their sales or transactions. They still rely on paper and manual ways. No joke. I heard it is a small business in rural area doing old customer business. At the end, the old director of the business who make the decision.

Like any other investment, if done correctly, a well developed software will help someone life become easier and generating profits.
If you invested on a car as a taxi, you can never expect it working endlessly. At some point, you may need to invest on a new one.

This is what I really believe in.

That's why I think it is crucial to let the client know they are getting break even in very short time.
When business get improved significantly, they will convinced and don't mind to pay some small maintenance fee.

Two Sides of the Same Coin​

There are always two perspectives.

The Customer's View:​

"I’m paying, so I want everything.
I want to pay once, and have the software fixed, updated, and supported forever — ideally until the death of the Sun.
Or, if I must pay support, it should cost less than the yearly update fee of a ready-made product."

The Developer’s View:​

"I will build this solution — and it will change everything for me."
But the truth is... you don't get rich with custom software.
You might earn good money once, but you’re also committing yourself to the project forever — or at least until you're exhausted.


After that one-time payment, you might earn some recurring income (monthly, annually, or per update cycle), but usually not enough to justify the ongoing effort.


And don’t forget:
You’ll also handle support — endless emails, phone calls, questions like "How do I do this?" or "Why does this button not work?" — sometimes for years.

The Harsh Truth​

Sometimes, it's actually smarter to build a commercial product —
Charge $10, sell it to millions, offer limited one-year support, and move on.


But that raises a bigger question:
Can you identify a need that millions of people share?


That’s a completely different challenge — but maybe a more scalable one.

Magma said:

Sometimes, it's actually smarter to build a commercial product —
Charge $10, sell it to millions, offer limited one-year support, and move on.

Click to expand...

True

Magma said:

But that raises a bigger question:
Can you identify a need that millions of people share?

Click to expand...

And there we have it, the $100,000,000 question right there.

Let me know if you have an idea M, cheers

Good points again @Magma

I use the same car analogy

If let say I as a customer want to buy a car, I expect the car can help me in many ways
At the same time, I have multiple of choices.
What type of car, size, seats, loads, types, brand, model, quality, reliability, durability, look, impression it brings, maintenance to pay, resale value, etc.
I need to be realistic and make a good decision.
I know what I pay for.
If I cheap, spend small, I know I can't get a luxury car with fancy features.
But in real life, how many would think like me?

Now let say now I am the car manufacturer. I will make consideration too.
What type of customer I am targeting to? What mindset or branding I want to bring out? What my competitors are offering? And many many question that I need to survey.
I must choose a route that I want to take.

For example, a small company like Mazda knows they are a small player, they choose a different route from the mainstream. Use different engine, focus on conventional gearbox, emphasize on something customer who appreciate and done it right.

My point is to play a sincere role in providing service or products. Not just thinking of making money.
There are different classes of customers afford for low cost product to luxury product.

One important thing I want to point out is, there are big differences between a business mindset versus a investment mindset.
It is dangerous if someone mix both of them in a certain context.

Recently a friend say I am failing and not admitting my mistakes. I think he is having only a investor mindset. When he sees I am not making profit, he thinks I should make a "stop loss".
Maybe he is right.
But for me, I am doing a business, not investment. It just I haven't yet succeed in making good profit, doesn't mean I already loss and failed. Sometimes or most of the times business started in losing money state because we need to invest time, equipment, research and work. It needs some time to break even. If I use the same mindset of a investor, I should quickly give up and I don't think I will ever succeed one day.
My business is not growing fast this is true. I wish I have a right partner. Until then, I just moving slowly. I tell myself, just ignore the naysayers.

When you have a good idea or product, the next thing is to have a good business model to monetize it.
People say there is no silver bullet.
In my view, why not try one. If not doing well, try another one.
As long as we don't easily give up. The product will bring profit in certain way.

aeric said:

When you have a good idea or product, the next thing is to have a good business model to monetize it.
People say there is no silver bullet.
In my view, why not try one. If not doing well, try another one.
As long as we don't easily give up. The product will bring profit in certain way.

Click to expand...

From one side is wrong to change the business model for the same product, at least with the same name and specs.
But, hey I am not so good on marketing...

aeric said:

My business is not growing fast this is true. I wish I have a right partner. Until then, I just moving slowly. I tell myself, just ignore the naysayers.

Click to expand...

You already have strong partners — and I’m here, ready to contribute. I truly believe that soon we’ll have the opportunity to create something big together.
Looking forward to what lies ahead.

"But the truth is... you don't get rich with custom software."

"but usually not enough to justify the ongoing effort."


ROFL. That may be true in your experience. Not mine and certainly not the experience of a whole lot of developers out there, however. I've made a fairly long career (41+ years) with 5 of my companies since I was 16 years old doing exactly what you discount so easily. My business partners and myself did quite well with our little software development businesses. Enough to retire back in 2008-2010. I've since un-retired because I'm waiting for my wife to finally retire (any day now) and because I keep seeing new opportunities in the software development, SAAS and IT fields that I can't stand to pass up. Once she retires, I'm done. It's time for those with the vision and attitude to take over.

It really all just depends on *what* your product/service is; the *demand* of said product/service; and how you *execute* it. Find a (profitable) software/service niche and exploit it. They're out there. All over the place. Simple. But, then, not simple ... otherwise, everybody would be doing it. I loved that one animated movie about robots several years ago that had a tagline of "See a need, fill a need" or something like that. Not every need is worth filling. But, a lot of them are.

Good luck, aeric.

Congrats @AHilton
Like Peter mentioned in post #5, we live in different culture.
Compare now with the past, I think it is more difficult to make money now as software provider compared to 15 years ago.
There are so much challenges and things are evolving fast nowadays.

Back to the topic, I want to discuss about the ROI calculation formula that you use to convince your client, if happen that you have one.

I anticipate someone asking my formula if he is interested.

It turns out we are talking about our own business strategies.

I actually not interested or care about your business ROI. I don't get any share.

AHilton said:

"But the truth is... you don't get rich with custom software."

"but usually not enough to justify the ongoing effort."


ROFL. That may be true in your experience. Not mine and certainly not the experience of a whole lot of developers out there, however. I've made a fairly long career (41+ years) with 5 of my companies since I was 16 years old doing exactly what you discount so easily. My business partners and myself did quite well with our little software development businesses. Enough to retire back in 2008-2010. I've since un-retired because I'm waiting for my wife to finally retire (any day now) and because I keep seeing new opportunities in the software development, SAAS and IT fields that I can't stand to pass up. Once she retires, I'm done. It's time for those with the vision and attitude to take over.

It really all just depends on *what* your product/service is; the *demand* of said product/service; and how you *execute* it. Find a (profitable) software/service niche and exploit it. They're out there. All over the place. Simple. But, then, not simple ... otherwise, everybody would be doing it. I loved that one animated movie about robots several years ago that had a tagline of "See a need, fill a need" or something like that. Not every need is worth filling. But, a lot of them are.

Good luck, aeric.

Click to expand...

In my experience of 30 years Custom Programming - i didn't find a way to be rich... Ofcourse Good luck to everyone!

Can you share your way / how you managed to be "rich" ?
All the profit came from Custom/Bespoken Programming ?

Congrats !!!

Magma said:

From one side is wrong to change the business model for the same product, at least with the same name and specs.

Click to expand...

I think explain sincerely to your customer your company change of policy for survivor. If it is reasonable, I think they can understand. Don't scare of losing customer if your product is good. Or you retire the old name as you said and introduce with new name.

Magma said:

You already have strong partners — and I’m here, ready to contribute. I truly believe that soon we’ll have the opportunity to create something big together.

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Well I actually looking for partners locally where I can discuss about marketing strategies and company directions. I plan doing small. Haven't plan for cross border business yet. It is not easy because of different country economy landscape.

It's better we start another discussion in business forum.

aeric said:

Congrats @AHilton
Like Peter mentioned in post #5, we live in different culture.
Compare now with the past, I think it is more difficult to make money now as software provider compared to 15 years ago.
There are so much challenges and things are evolving fast nowadays.

Back to the topic, I want to discuss about the ROI calculation formula that you use to convince your client, if happen that you have one.

I anticipate someone asking my formula if he is interested.

It turns out we are talking about our own business strategies.

I actually not interested or care about your business ROI. I don't get any share.

Click to expand...

I'm not trying to be a contrarian but I might have a bit of a different perspective with being on "this side" of a career ...

"Compare now with the past, I think it is more difficult to make money now as software provider compared to 15 years ago."

Nope, if anything it's much easier. Especially comparing back to the early/mid 90's to now. Yes, there's more competition *in certain areas* but there are far far far more opportunities because ...

1) Software is EVERYWHERE now. So many more platforms, industries, and so on that are available to target. Just unbelievable when compared to a decade or decades ago.

2) People trust software (well, in a certain context ... virus', spam, ai, etc. are an issue, of course, but it's not like "in the old days" where a lot of businesses didn't even know what software was, ha!) Businesses know that software can make a difference. Days past, they had no clue and most of your selling was simply describing what software was, let alone what it could help solve.

3) The speed of development and the reach of your products/services are ever better now. I'd dare say that both of those have exponentially gotten better and will continue to be. I don't have the math for that assessment ... just a gut feeling. This goes along with the following...

"There are so much challenges and things are evolving fast nowadays."

Not. Even. Close.
Again, I see this from being in the midst of it back in the early to mid 90's onward to today. The pace of change was incredible. Now, it's positively glacial. Every 6 months, the (PC, Software, IT) world completely changed and you had to start over. With lesser tools, employees, support (anyone remember being on (actual Phone) hold with Sound Blaster (they weren't the only ones... most companies back then took forever) Tech Support for 3+HOURS until someone picked it up? only to be told you had to hack the driver yourself to get your Procomm Plus to work! That one was with Walmart client back in '91, I think.) The knowledge is out there. Back then? Nothing. Trial and error only. How old is Android? iOS? How different, really, is it from the V2 or V3 versions? The Web? Unless you were there, programming with and against, the Netscape of the 90's, you have no perspective.

Yes, this is the "old guy" saying things were so much harder back then. <grin> Yeah. But, they were far more exciting and rewarding. More difficult now? No. Not easy, but it's at least manageable.

Magma said:

In my experience of 30 years Custom Programming - i didn't find a way to be rich... Ofcourse Good luck to everyone!

Can you share your way / how you managed to be "rich" ?
All the profit came from Custom/Bespoken Programming ?

Congrats !!!

Click to expand...

I would not consider myself to be "rich". I have more than enough to retire and do whatever I want, wherever I want and still pass down to my family. That's all I ever wanted and need.

Yes, custom programming. I sold my first custom piece of software at 16. Took a break to go to college (unrelated) and then returned to programming to form a company. Sold that to a Hong Kong company that took the software/solution to South America. Started another software/IT company and then another with engineers until a few years ago. Retired then unretired and started 2 more companies that are still running. Also, got involved with a nonprofit on the science IT side of things that I find very rewarding. I have to say that all of this is NOT just me. Lots of partners and others involved.

The "secret" which hasn't been a secret for, probably, many millenia and is in my previous post .... "Find a need. Fill a need" is really all it boils down to. Oh, and choosing a profitable (money-wise, soul, community, in any combination you deem worthy) need to fill I guess would be the deciding parameter there. I'm not about to custom-make a POS type of application to try to compete with the multitudes of them out there, for example. I don't care how fast, cheap or wonderful the interface is; it's not going to be rewarding for me or my business.

One of my pet peeves, when it comes to hiring employees and when I hear these kinds of complaints from developers or programmers is the inflexibility. I was taught as a child, in a fairly poor, rural area to poor family that, literally, dug ditches and got very dirty for a living (ie, dig and eat, rest and don't), that you did the work for which work there was. Meaning, when I look at a new programming project, or business problem/solution I've been asked about or just found on my own, I don't, first, look at my own tools/skills/experience to decide how I'm going to tackle it. If I have that "tool" in my toolchest to solve the problem in the best way, then I'll use it. If not, then I quickly pivot to either find or simply make that tool. Work the problem in front of you; not the tool in your hand. Far too many programmers, to bring it back to somewhere close to this forum, only see their tool (programming language? experience? comfort-zone?) to solve the problem. Same goes for developers on the wider-view of the world around them and the opportunities therein. Find the problem. Fix the problem. Simple.

Is very semantic for community to share experience... thank you

Magma said:

Can you identify a need that millions of people share?

Click to expand...

Peter Simpson said:

And there we have it, the $100,000,000 question right there.

Click to expand...

My thought (not always right) :

Don't think so much of about such perfect idea will come out.

I believe many successful businesses are not come from a great idea.

The founders may came out with an idea which is not obvious.

It may seems not interesting or anyone can get it.

This also caused not many people will even want to invest on it in early stage.

With perseverance, the founder will keeping fine tune the product.

It is until certain versions when the product is starting to show something the public can see the usefulness.

So I can say, stick to something we are already familiar with. It is less risky and we can sure we can do it very well.

In the meantime, a problem will suddenly float up and this is the opportunity to provide a solution.