Businessproject quotes

Software, Like All Technology, Must Pay for Itself Over and Over

By Nik Froehlich | October 15, 2020 |

There are only two ways to increase profits. One is to increase revenue. The other is to reduce costs. There are no others. Improved productivity is only improved if it reduces the cost of getting things done. Improved customer satisfaction is only valuable if those customers return to make more purchases and/or send others to do so. CFO’s call these “soft” gains, and they only want “hard dollar increases.” If you’re willing to do the work to capture the data you can usually calculate the “hard” gains from the impact of the soft, but its seldom easy.

How Much Incremental Profit Does My Software Produce?

It may seem like a loaded question, but it’s important to ask yourself how much-increased income and/or reduced cost your software produces, and how you can increase that.

In fact, it’s a useful question to ask as you embark on having software created for your business. When you ask how it could create new revenue the answers will get you thinking about what business-building functions would have a real impact. Add those into your functional specification for the software! Similarly, when you ask how much your software could reduce your costs and save you money, it will inspire you to think about processes that could be improved to run more efficiently, and what functions could benefit from automation. Again, add them to the functional specification.

Having asked the question you now have software designed specifically to increase revenue and reduce cost which is exactly what you want.

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How Long?

For those who are concerned the cost of having software developed for your business may be too high, here’s how to determine whether or not it really is.

Taking the answers to that first question, estimate how many times each revenue-increasing or cost-reducing event happens per day, per week, per month, per quarter, per year. Determine how many days/weeks/months it will take before the total of your incremental revenue and decreased costs is a number greater than the fee you paid for the software.

If your reaction is anything similar to “wow, that’s fast!” pull the trigger on that project immediately. That period of time will vary with each individual, but you’ll know what seems fast for you.

How Often?

Put most simply, if your software returns its cost in a month it will pay for itself twelve times over each year. What percentage increase does that put on your bottom line?

Then ask how you can accelerate that return. How do you make it happen faster? Perhaps changes in how you use the software will speed up the processes that produce a profit. You may decide to go back and improve or add new features to your software; that’s one of the big, big benefits of having your own software written. You can literally interact with it, making it better as it shows you how it could be made better.

Just remember to revise your calculations every time you do make a change to see how much it has increased your bottom line.

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What to Expect from Your Developer

Your best choice of a software developer is one who can advise you, guide you, and share their experience with you. They’ve done this before. They know where many possible sources of savings and revenue may come from. The best software developers are well-informed business specialists as well. They understand how revenue increases and how expenses are reduced. Engage them in your process of identifying ways to make your software make money for you.

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