In this post, we will show you the four tips that help you to understand the Software ROI (Return of Investments) for your startup company.
In today’s automated world, one of the important startup costs is that of software. But despite the hell-bent effort to get the business up and running, time should be taken to evaluate Software ROI (return on investment) as accurately as possible. Lets start with the basics.
What is Software ROI?
Software Return on Investment (ROI) is a metric used for measuring the success of software investments in your company.
The simple software ROI formula would look something like this:
Software ROI = (Gain from Software Investment – Cost of Software Investment) / (Cost of Software Investment)
Startups come about due to entrepreneurs and their innovative actions. In addition to spotting and seizing an opportunity that others have evidently missed or not taken full advantage of, an entrepreneur will find all kinds of nifty ways of getting a startup off the ground while cutting costs and keeping everything within (or at least closely within) the budget.
Reverse Softare ROI
Cases such as this are in actuality examples of “reverse ROI.” The initial investment has a low price—maybe even free. But the money and time lost due to the application’s ineffectiveness costs many times more than that initial investment. While the intention was to save money, the real-world result is quite the opposite.
Cheaper is Not Necessarily Better
While it might merely sound like the perfect product pitch for software with a higher ticket price, it is nonetheless true that “cheaper is not necessarily better”. Entrepreneurs engaging in startups will often gravitate to the least expensive solutions possible, if only to get the startup moving forward, the logic being, “we’ll obtain more adequate solutions later; this will work for now”.
It is well worth stopping at that point, however, and evaluating the less-expensive solution. Will it really be adequate for the job at hand, or does it lack the functionality that you truly need? To take a slightly exaggerated example, a business might take to using Notepad instead of a functioning word-processing program such as MS Word. But the appearance of misspellings and glaring grammatical errors in the company’s web site and in promotional material content is the worst clue possible to the fact that they might have considered their word processing needs more closely to start with.
A more real-world example is that of databases. It is extremely common for a company to adopt an inexpensive or home-grown database at the outset of business, the idea being that a more expensive database can be purchased as the company becomes more financially capable of doing so. Up the line, however, the lack of foresight of that decision becomes all too apparent when customer data is not complete enough to really function, or the data that is recorded in that inexpensive database cannot be ported to any new one chosen. In that a company totally relies on this data for the conducting of business, it well behooves it to consider such eventualities before committing to the “cheap solution.”
Where’s the Balance?
This isn’t to say that a startup should try to spring for the expensive all-out “bells and whistles” solution to start with. Obviously a startup has (usually) limited funds with which to work, and a low ticket price is beneficial or even mandatory. So what kind of balance can be struck?
It’s simple. Before you go seeking a particular solution, list out the essential needs your company has for that solution. Make sure to consult each and every person or department that will use that application. Separate out the true requirements from the “nice-to-haves” but make sure those actual requirements are named.
Then find an software application that meets those needs at a price you can afford. It still might cost a bit more than you allocated, but the time, effort and funds saved up the line will be more than worth it.
As a note, there are software publishers and vendors that will work with you to bring you a desired product at a price you can afford, in anticipation of more business up the line as you grow. Seeking out those kinds of suppliers at the getgo can pay great future dividends.
While evaluating a potential solution, another factor to take into account is scalability. As your business grows, does the solution have the capacity to grow with it? How far into the future will that solution be useable? The most ideal solution is one which meets your needs now, and one that will also meet your needs when business—and the size of your staff—has doubled, tripled or more.
A startup is an exciting step forward. Despite the rush to get it going, take the time to evaluate the ROI of any software you decide to put to use. You’ll be rewarded with functionality that helps your company grow faster and, more importantly, doesn’t slow that growth to a crawl later on.
See our other articles in this special series on startups.