The debate of build vs. buy software is far from new. But, if you’re struggling to compare the ROI of both options, you aren’t alone. In fact, it’s so difficult that over 68% of teams rarely or never measure the ROI of their IT initiatives at all!
The good news is that there are steps you can take to help make the decision between building custom software and buying off-the-shelf software. In this article, we’ll walk through a 5-step decision making process you can replicate to make the right decision for your business.
What value does software provide to businesses in 2024?
In the business world, time is money. Companies need software to save time on tasks that can be automated, such as data entry, accounting, and customer relationship management. In addition, software solutions can help companies keep track of their inventory, customers, and sales. By using software, businesses can operate more efficiently and effectively.
- To save time on tasks that can be automated
Software can automate tasks that would otherwise take up valuable time, such as data entry and accounting. This can free up employees to focus on more important tasks and improve efficiency. - To keep track of inventory, customers, and sales
Software can help businesses keep track of inventory, customers, and sales. This information can be used to make decisions about stock levels, marketing campaigns, and more. - To operate more efficiently
By using software, businesses can operate more efficiently. This can lead to increased productivity and profitability. - To improve communication and collaboration
Software can improve communication and collaboration within a company. This can be helpful for team projects and brainstorming sessions. - To make better use of data and analytics
Software can make it easier to collect and analyze data. This information can be used to improve decision-making, understand customer behavior, and more.
Building software in-house
Building software refers to the process of creating custom software solutions tailored to the specific needs and requirements of a business or organization. This approach is often taken when existing off-the-shelf software products do not meet the unique demands or preferences of the entity.
The leading reasons for building are:
- Customization potential: Building software provides the opportunity to tailor the application to the exact specifications and requirements of the business, ensuring a perfect fit for its unique needs.
- Competitive advantage: Custom-built software can offer functionalities not available in off-the-shelf solutions, giving companies an edge over competitors.
- Ease of integration: Built software can be seamlessly integrated with other existing systems, databases, or platforms, allowing for more coherent operations.
- Long-term scalability: Companies can design their software with growth in mind, making it easier to expand and adapt the software as the business grows.
- Full ownership: When you build your software, you own it outright. And when it’s your own software, there are no licensing fees, and the software can be modified or expanded upon at any time without restrictions.
Buying off-the-shelf software
Purchasing off-the-shelf software means acquiring pre-built software products that are available to the general public. These software solutions are designed with a broad user base in mind, catering to the general needs of a particular sector or function, rather than the unique needs of a single organization.
The leading reasons for buying off-the-shelf are:
- Quick deployment: Since the purchased software is already developed, it can be quickly installed and put to use.
- Lower cost: Initial costs are generally lower than building custom software from scratch.
- Proven reliability: Popular off-the-shelf software has been tested by a broad user base, ironing out many bugs and issues.
- Support and updates: Established products often come with dedicated support teams and regular updates.
- Community and resources: Popular software solutions often have large user communities, offering forums, tutorials, and third-party tools.
Build vs buy software - 5-step decision-making process
Having explored the intricacies of both buying off-the-shelf software and building a bespoke solution, you're now equipped with a comprehensive understanding of what each option entails. Yet, the looming question remains: which path is the right one for your organization? To help you evaluate relevant factors and make the final decision, here is a structured 5-step process:
Define your business needs
Start by outlining your software requirements through a comprehensive product charter. This document serves as a foundation to assess the benefits and potential risks of the software venture, ensuring you're informed about its technical feasibility, capabilities, and where it fits within your overall business portfolio. Once you have a grasp on your business software needs, turn your attention to portfolio priorities. It’s important to think about this software project within the larger context of other software or IT projects. Two major areas to consider are:
- Value check: Think about what each piece of software could bring to the table. Will it boost your sales, cut down costs, or make things run smoother? Ideally, rank your priorities according to the value they provide and see where this specific software venture fits in.
- Complexity and software risk: Now, consider how much complexity and risk each one might be to get off the ground. Is it a significant project? Are there tech issues, integration concerns or regulations to worry about? How much will it shake up your current workflow? Again, rank this software project’s risk and complexity against any others within your organization.
Doing this work upfront will help you have a clear understanding of your business needs. Take this information with you into the next steps so you can consider your options within the broader context of your organization and its priorities.
Read More: Product Charter: Template & Writing Process Steps
Research the option to buy
With clear business needs defined, it’s now time to investigate your options. The effort required to complete this research work will depend on the scope of the project and the experience of your team. Generally, we suggest you start by taking a detailed look at the options available to you off-the-shelf (i.e. to buy).
Take a look at their websites and marketing materials of available software options. Get a sense for their brand and target audience. If you feel it could be a good fit, start reading reviews. When you’re ready to engage for a demo or trial of the off the shelf solutions, consider asking questions such as:
- What security measures do you have in place to ensure my data is safe?
- Are there any additional costs for additional features or users?
- What is the uptime and availability of the service?
- What kind of technical support do you offer?
- What is the process for canceling my account?
- Are there any contracts or long-term commitments required?
- What scalability options are available?
- Are there any restrictions on usage or features?
- Are there any restrictions on data storage or access?
- Are there any limits on the number of users or transactions?
Read More: 8 Step Proof of Concept Template article for more details.
Get custom software solution estimates
Now that you’ve looked at off the shelf products, it’s time to turn your attention to considering custom software development services. To help you weigh your options, you need to get a few cost estimates from custom software companies. In order to get a realistic cost estimate, you need to have your software requirements documented.
Now, don’t think you need to have everything about the potential software defined at this stage, but you should have a decent plan laid out before you start reaching out to vendors. A simple list of requirements along with basic mockups, diagrams and/or workflows is a good place to start. It can also be helpful to assess the general technical skills that will be needed to build your custom solution.
Once you have this in hand, start looking for companies that specialize in custom built software. There are plenty of resources where you can find custom development companies including:
- Use Google to search for software development companies. Both paid and organic results can be helpful. From individual company websites you can get information on their software development services, industries they work with, their previous clients and their work processes.
- Browse software development review and rankings websites. One of the most popular of them is Clutch. You can view the search results by location, minimum project size, average hourly rate, industry focus, and more.
PRO TIP: To improve the accuracy of the estimates you receive from custom development companies, put together a software requirements specification (SRS) document that outlines:
- Product summary and scope
- Intended audience
- Assumptions and dependencies
- Functional requirements (what the system is supposed to do)
- Non-functional requirements (how the system should perform)
- Acceptance criteria
Read More: 6 Steps to Accurately Estimate Software Development Costs
Consider the pros and cons of each option
There are pros and cons to both building and buying software. At this juncture in the decision-making process, organizations must confront the "build vs buy software analysis." It's here that the detailed examination of each option's strengths, weaknesses, and alignment with organizational goals comes to the forefront. As we embark on this step, remember that our findings will shape the direction and long-term viability of the chosen solution. A few specific things to consider:
- Consider the unique processes, design, affected systems, departments, user roles, and workflows that will be involved in each option. Building software will likely require more customization and may be a better fit for organizations with specific needs that off-the-shelf solutions can't meet. Buying may be a better option for organizations that want a ready-made solution and don't have the resources or expertise to build their own.
- Research the costs and benefits of both options. Building will likely require more upfront investment, but may provide more long-term benefits. Buying may be less expensive in the short-term, but may not offer the same flexibility or scalability as a custom solution.
- Weigh the risks and rewards of each option. Build carries more risk because it requires more investment and expertise, but it also offers more potential rewards. Buy is less risky, but may not provide the same level of customization or control. Ultimately, the business decision of whether to build or buy software solutions depends on the specific needs of the organization.
Make an informed decision
The team has done their due diligence and has weighed the pros and cons of buying off the shelf software or investing in custom software, looking at the ROI of each option. Now, the team must make a final decision about which course of action to pursue.
Once a decision has been made, the team should then draft a Statement of Work (SOW) and sign a contract with the vendor in order to begin the implementation process and ensure that all parties are in agreement with the terms and conditions of the project.
Conclusion
There is no one-size-fits-all answer to the question of whether to build or buy software for your business. The decision depends on a number of factors, including the unique processes, design, affected systems, departments, user roles, and workflows within your organization. By evaluating relevant factors are necessary to determine what is better for your business. In general, businesses should build software when they have specific, unique needs that cannot be met by off-the-shelf products.
If you want to scope out what it would look like to build a custom software solution, at SoftKraft we offer business software development services to help teams optimize their business processes and accelerate business growth.
