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If you’re in business — or any environment where you have to make choices about how to allocate limited capital — return on investment (ROI) is how you decide where to spend your money. And to determine ROI you have to know the cost.

When it comes to software, though, whether it’s a website, mobile app, or custom enterprise application, calculating cost can be tricky. That’s because the cost of software involves far more than how much you paid programmers to write the code. 

Total cost of ownership (TCO) for software involves many components. If you’re struggling to hit a target ROI on a custom app, lowering TCO is your best bet to boost returns.

So let’s figure out how much your software really costs. You can start by breaking your costs into two main groups:

  • production and start-up costs
  • post-production and operations

Production and start-up costs

These are all the costs required to go from “we should create software that (fill in the blank)” to actually launching the app. These often include:

  • Development costs. This is the actual cost of paying programmers, project managers, designers, technical writers, and other professionals involved in creating the software.
  • Hardware. This includes the cost of servers the software may run on as well as any client devices or other hardware associated with the software.
  • Licenses. Even if your developers or an agency have written custom software, it may still use third-party software or third-party data for certain functions. Licenses for these are part of your cost of production.
  • Off-the-shelf software. If your developers purchased off-the-shelf programs — code editors or integrated development environments (IDEs), graphic programs, database editors, or other software — the cost of that software should be included in your production costs.
  • Data migration. If the software required data that was stored in a database or a legacy application, there are often additional costs involved in migrating that information to the new app.
  • Training. Getting people to use the app typically involves training. Support specialists and help desk workers also need training to get up to speed.
  • Other costs. In addition to all of these expenses, many companies incur costs related to their industry, such as regulatory fees or patent costs. Make sure you account for these investments, too.

Post-production and operations

Launching a new app or website is just the beginning. There’s still work to do to keep your new software running the way it should — just like a building requires maintenance and upkeep after it’s constructed. 

Ongoing operational costs for software can be higher than production costs, so keep a close eye on these. And since you can’t go back in time and change your production expenses, post-production costs are probably your best bet to boost ROI on a software project.

  • Datacenter fees. The cost of hosting an app and related data assets in a data center, where someone else can worry about server uptime, backup generators and other details, is part of an app’s operational costs.
  • Software maintenance. Maintenance includes all the routine, but important, tasks required to keep software running smoothly. These include app monitoring, system backups, security patches, updates, emergency support, and more.
  • Software support. Support tasks are all those activities that help users get the most value from your app. These include help desk support, troubleshooting and bug fixing, content changes and code deployment.
  • Licenses. If your app or website uses third-party content, data or software, the ongoing costs of those licenses are included in your operational costs.
  • Enhancements. Over time, you’ll likely find that you want — or your users demand — improvements to the app. Sometimes this means fixing things that work, but not quite as well as everyone would like. Sometimes this means adding new features.
  • Upgrades. If your software is successful, chances are that sooner or later you’ll want to do more than just add a few tweaks. That could mean substantial investments in new coding. Upgrades also might be forced on you by external circumstances, such as the rollout of new computer or smartphone operating systems.
  • Disaster recovery and downtime. You can hope that your app or website will never go down, but … stuff happens. When Hurricane Sandy hit the greater New York area in 2012, some prominent SaaS websites and apps crashed because their NYC data centers were damaged. If something like this happens to you, you’ll need to spend time and money to recover, and you may have to account for lost revenue during downtime.
  • Archival costs on sunsetting. Everything comes to an end sooner or later, including your app. It’s common, however, for companies to archive data in the app or otherwise maintain access to it for some years afterward. Sometimes regulations require you to maintain access. If so, you’ll face costs for getting that data into an archive you can access.

What to do with all these numbers

Let’s say you’ve done the research and plugged all your software cost data into a spreadsheet. Now you know how much your app actually costs, and you can determine it’s ROI. So what next?

Here’s three ways that knowing these numbers can help you.

  1. Make your next project better. Going through all these numbers after the fact, you’ll likely discover places where you could have saved money, if only you had known …. You can’t go back in time and change what’s already happened, of course, but you can use this know-how to deliver better, more profitable projects and products in the future. 
  2. Share the numbers with your team. Software and web development are team sports. Costs aren’t determined by a single person, but by the decisions made by the group. Sharing these cost numbers will likely help your team operate more efficiently and profitably in the future.
  3. Boost your ROI. Review post-production costs to see if there are places you can save money and increases your return on investment. If it’s been a few years since you reviewed data center use, for example, are there savings to be had by renegotiating that contract or finding a better provider?

About LOFT

Another common way to find savings is to outsource your maintenance and support tasks to a company, like LOFT, that can provide those services for a fixed, predictable fee.

Learn more about how LOFT provides better support, maintenance, and optimization for less than companies can often do it themselves.