Software has the potential to transform and enhance your business, granting new capabilities, streamlining operations, and generally improving productivity. At the same time, software is expensive in many cases.

Purchasing or developing new software can bolster your business, but how do you make sure that your software investment pays off?

The ROI Equation for Software

The best way to determine the relative value of a piece of software is to calculate its potential return on investment (ROI). As with other areas where ROI is applied, this essentially means calculating all of the costs and all of the benefits, then comparing them. If all of the benefits collectively outweigh all of the costs, you can feel reasonably certain that your software is going to be a worthy investment.

The only problem with this is that ROI is hard to estimate, and even if you do a great job, it’s still only an estimate. That said, you can be as thorough as possible in your analysis to make that estimate accurate – and you can always make modifications to your suite of software if you find it to be inaccurate in the future.

Doing Your Due Diligence

Before selecting software to add to your company software portfolio, you need to do your due diligence.

• Outline your needs first. Sometimes, business owners endlessly acquire new pieces of software because they look cool or because they have a good reputation. But this is usually a recipe for disaster, since you’ll spend an excessive amount of money and end up with tools you never really needed in the first place. Instead, it’s better to outline your needs first. Long before you purchase any software, and before you even start comparing different providers, you should write out a list of your needs and what you’re looking for. This way, you won’t be tempted to buy something that isn’t directly feeding into the objectives of your business.
• Consider a wide range of options. When shopping for software, consider a wide range of options. There are likely many different software platforms serving similar purposes, with very different approaches and very different pricing schedules. If you want to find the best fit, you’ll need to review many of these and compare them to each other directly. As you become more familiar with the type of software you need, you’ll be more effective in your ultimate decision making.
• Calculate all the expenses. When building out your ROI equation, make sure you calculate all the expenses. Obviously, you’ll need to factor in how much you’re spending directly on the software, but you’ll also need to think about some of the secondary and peripheral costs associated with it. For example, it’s going to take time and money to learn how to use a new piece of software; if the software isn’t intuitive, these costs could be quite high.
• Detail the prospective benefits. Similarly, you’ll want to detail the prospective benefits. Depending on the nature of the software, this could be very difficult; some of the benefits may not be easy to quantify and not all the benefits will be foreseeable. Will this augment your capabilities as a business? Will this be able to save you a specific amount of time? Could this improve employee morale and therefore retention and productivity? Be conservative in your analysis, but do include many factors.
• Experiment before acquiring. Just because the software looks like it works well doesn’t mean it will. Accordingly, you should always experiment before making a full acquisition. Take advantage of free trials and make sure your employees are on board before bringing in a new piece of software.
• Extract the full value. Once you’ve made a purchase, do your best to extract the full value of the software you’re using. Keep a close eye on the costs and use every available feature to the best of your ability.

Making Changes

On an ongoing basis, you’ll want to review the value of your software and make appropriate changes.

• Collect feedback. Employee feedback can be valuable in determining the value of your software. Listen to your employees to see whether they feel like this software is adding to or detracting from their jobs.
• Conduct individual and broad audits. Audit your software on an individual basis and take inventory of all your software products more broadly. Be on the lookout for areas of waste and redundancy, so you can make intelligent cuts.
• Keep watch for new alternatives. Similarly, keep an eye out for any new alternatives that could offer improvements over your current lineup.

There’s no guarantee your software investment will pay off. But if you analyze your needs closely and pay close attention to the ROI of each new software acquisition, you’ll be in a much better position to secure a positive return.