A Simple ROI Calculator: Kicking Off the Software Build vs. Buy Conversation

One of our partners recently asked us for an ROI Calculator—that handy tool that determines whether you should build or buy. As product managers and developers, we at GrapeCity understand that you can’t predict all the things that will go wrong, or right, or how many meetings you’ll spend discussing whether this tool will really be customizable, if it’s really that easy to implement, or if your team is really prepared to release four weeks from next Tuesday. So any ROI calculation is an estimate at best, and should be easy to find. A few moments on Google, and I found my ROI calculation… but only if I submitted my email and waited. I found out how to build an ROI calculator. I found spreadsheet packages detailing all the possible ins and outs, which is more useful, but it’s still pretty involved. I can calculate my mortgage online; why can’t I figure out if buying a product is really worth the cash? (Notable exception: ZenDesk has a nifty tool.)

Start with the Basic Calculations

So we constructed this simple ROI calculator. Is it a replacement for the spreadsheets? No. If you’re looking to install enterprise-wide software—a CRM or an ERP—you’ll need a lot more than this. But if you’re just looking to make a case, this is a great place to start. The formula’s completely unscientific, based on my and Wijmo PM Chris Bannon’s product management experience. You might have other ideas; if so, take this and run with it. Skip below to see our methodology.

Launch ROI Calculator >>

Calculate the In-House Development Cost… But Not the Problem Cost

(UX Design + Development + QA)* x Avg Cost/Hour Staff = Approximate Monetary Cost

A few things to consider about development cost: The third-party tool you purchase will have far more features than the specific one you’re estimating. So to get the true value of the third-party tool, run your in-house development cost against every feature and platform you’re likely to use. ComponentOne Ultimate supports 8 platforms, plus Wijmo's JavaScript controls and Xuni's native mobile apps: hardly equivalent to the cost of a single feature or control. Moreover, this covers only the time required to satisfy the basic control and the customizations for your company or client.

In-house development cost does not cover the time you spend solving the problem you’re hired to solve.

For instance, if you’re developing a complex series of formulas because your client needs tax software, that takes additional hours. You’ll work with your client to make sure the numbers are right, and displayed in a readable, intuitive fashion. That’s the whole point of developing software—and you’ll spend that time whether or not you build or buy the grid in which the formulas are housed.

Buy the Software Product, Buy the Time

(Product Cost + Optional Premier Support) x Number of Licenses x Subscription Renewal for [X] Years = Product Monetary Cost

That’s it; that’s the product cost. We’re assuming product evaluation is a given for both scenarios. We assume you’ll be testing multiple products and developing in-house estimates before making the call to build or buy. Implementation is also universal. The customization and algorithms I mentioned earlier are a fundamental requirement for building or buying.

Opportunity Cost is not Monetary Cost

Lastly, true cost is not always expressed in dollar amounts. Time spent on UX is time not spent on development. Time spent figuring out how to make a column resizable in-app is time not spent on QA. Time testing that resizable column is time not spent on developing formulas. Time isn’t money; in fact, development time is worth more than its cost in dollars. But dollar signs often make a better case. You’ll be doing more number-crunching before pulling the trigger. (Or maybe you’ll download ComponentOne Ultimate—which includes ComponentOne Studio, Wijmo, and Xuni—and understand its intrinsic value immediately!) But this simple calculator may kick you off in the direction that’s best for your firm. How does this work for you? What's your methodology for ROI or cost/benefit analysis?