To get positive software ROI, you must define success first
Getting positive software ROI can be make-or-break for companies who want to grow.
Every organization, no matter what it provides to customers, will at some point need to invest in technology. Whatever that investment looks like — build vs. buy, mobile vs. web, etc. — the money will have to be earned back. Ostensibly, that’s done by successfully building a valuable product. But what does that look like?
You can’t measure software ROI without a clear eye on what you want to accomplish. It’s like sailing a ship without a destination. You’ll never know when you’ve arrived. Deciding what success looks like for your organization is one of the most important steps in the process. Not only does it tell you what you should build, it tells you when you’ve achieved it.
There are 3 goals for getting ROI from software
There are three primary business drivers that software can impact:
- Growing the user base
- Growing revenue
- Attracting investors to then go do those other two things.
That’s it. How software makes it happen can take any number of forms. But at the end of the day, you need to know which driver is most important to focus on right now for your business.
The goal you set will send you down one of three paths. Investing in any technology is expensive, especially if you’re partnering with a software team to build a custom solution. You need to know which path you’re choosing and why, before you make the investment.
Download our software development strategy guide to visualize the path for your team.
Software return on investment: users, revenue or investors
As you think about which outcome you’re aiming for, test your thinking by filling in this blank:
“I know we can make money because ______”
You know your industry, your market and your business. Use this expertise to forecast not just what you need, but why it’s likely to happen. With a business goal in mind and a rationale for it, your definition of success will start to take shape.
Growing your user base can be worthwhile if you already know there are people you’re not reaching. This is where your “go-to-market” plan becomes critical. Knowing who your users are and what pain point you’re solving is critical to answer what you build and how you take it to market — all steps required to see success in growing your users.
If you’re not yet making enough money from the users you do have, revenue growth is often the path to take. Similarly, if you know why you think revenue growth is an option, you can usually figure out how you want to go about it. Whether it’s developing a new feature that your customers want and will pay for or rolling out an entire new channel of business that runs via new software, you have a user base — you now want them to spend more with you.
The third goal can be a tricky one. Ideally, investors are attracted to what you’ve built because you’ve accomplished one of the other two goals. Sometimes, however, you build software as a proof of concept — to see if the “thing can be done.” Oftentimes, these types of ventures come from experts in a specific field that solve for the “can we” and not the “should we” question. It’s a “solution-out” approach, as opposed to a “market-in” one — and a risky one, if you have any desire for commercialization and profit.
Sometimes this approach results in technology that attracts investors or potential acquirers. The risk comes from the Field of Dreams-nature about it: “Build it and they will come.” VCs generally look for the next big opportunity to invest in, but building to earn their attention or the attention of a buyer without a clear market application is the most tenuous of strategies for return on your investment.
Setting concrete software ROI goals
Once you know the business outcome you need, you can start to figure out what KPIs will signal success, growth, room for improvement or time to go back to the drawing board.
If your goal for software ROI is to boost users, you should look at just that. Test prototypes by asking users if each feature is something they would want to use or refer to others. Allow people to sign up on a waiting list for new features to gauge demand.
If you want revenue growth, measure exactly where users find value in the prototype. Ask how much this feature is worth to them — truly, what they would pay for it. If you are pursuing investor attention, find out how revolutionary this new product or service really is. Does it solve a business problem? Do users agree? Do doors swing open when you deliver your pitch, or do prospects seem cold?
Measuring ROI for software can show you what not to build
These solution-specific goals don’t have to be as big as growth in monthly active users, bottom-line dollars or new investors. They just have to tell you whether the path is sound.
Sometimes the best software ROI is a quick loss. Think about the cost of building something that won’t achieve your desired results. If the tests above “fail,” it’s a successful exclusion process. It’s not a waste of money to find out the next innovation is somewhere else. Learn from it, move forward, and start back at the beginning with our software development strategy guide.
Published by Patrick Turley in Business|research|ROI