Deciding b/w Custom Software and Out-of-the-box Products

Deciding b/w Custom Software and Out-of-the-box Products

Simple questions to ask that can help you avoid a costly mistake in choosing the wrong type of solution for your current project.

Is the way you run your business different than most others in your industry?

This question is the #1 factor in determining whether or not you should use custom software.

If your business is very cookie cutter (one of a thousand just like it) and most of your peers are following the same processes, chances are there are Out-of-the-box (OOTB) software that has already been designed that you can utilize, for less money and headache that custom software. In these cases, there is a high likelihood that you would be wasting your money with custom software.

But more often than not, I find that businesses, or at least the ones with good leadership, are filled with subtle differences that can be used to gain real-world advantages throughout their various functions. In fact, in many cases, my experience has been that the only reason many businesses think their processes are standard is simply that they are not using technology effectively enough to take advantage of them. Over a dozen times I’ve seen 

These subtle differences should be the targets of your custom system project. By capitalizing on these unique processes, you can leverage those processes into advantages that directly impact the bottom line.

Are you in a relatively small niche?

The bottom line is that specialty businesses have the potential for high returns, but with those, there runs the risk that you are always in uncharted waters, including with technology.

If your business is so unique that there are few competitors, you really have no choice but to use custom software since the market sector is not big enough for any OOTB players to worry about.

If you have a high volume, low margin-based business, successfully implementing a custom system to make small gains could turn into a HUGE ROI, particularly because the investment today will pay for itself for years to come.

Imaging reducing defects by 1–2%, or lowering the cost of goods by 3–5% by optimizing a specific part of your business with technology? What would that do to your business?

Are you trying to stand out from the crowd with your customers, employees, or competition?

This one is self-explanatory, but too often business owners fail to realize the ramifications in not taking action.

Today’s workforce is an extremely competitive market, both with your customers and when it comes to hiring and keeping talented employees. Companies of all sizes are overpaying to steal good employees from their competition, following the adage of “He who has the talent, usually wins the game.”

Furthermore, employee turnover is one of the hidden costs that can wreck the bottom line profit of a business. Besides the tangible costs of recruiter fees, background checks,and testing services, there is the opportunity costs that come with interviewing and screening candidates, usually from members of your leadership team.

One way you can increase employee & customer retention is to make their lives easier through technology. Simple projects like reducing manual effort, or creating easy to use dashboards, can be the difference-maker in an employee being happy at work or spending the day browsing job postings. That $25,000 you saved by not making the data entry form easier to you, will pale in comparison if you lose your top salesman because he/she was tired of wasting time entering data.

Do you hate paying ongoing licensing or subscription costs?

Out-of-the-box software can be cheap, but there is one big factor that often prevents it from being the right solution, the ongoing licensing and support costs.

If you have a single user, it’s usually not a big deal, but if you are expecting to grow your usage of the software, oftentimes that comes with a very high per-user fee, one that you have to pay for as long as you use it.

When evaluating the TCO (Total Cost of Ownership), it is important to evaluate OOTB vs Custom System over a 3-year or 5-year window. If the custom software is less than 36 months worth of equivalent licenses of an OOTB solution, it is typically a no-brainer to go the custom route.

Here is an example:

Let’s imagine that an out of the box software you are considering for a field capture utility (100 users) has the following

  • A license cost of $1,000/year/user. 
  • An annual support cost of 15%

$878K!! (this number is also why so many product vendors are chasing recurring subscription)

Now, 10-years may be a bit on the longer side to use as a comparison, but if the equivalent custom system can be built for $150,000 or less, you really should consider that approach.

Note: For OOTB cost evaluation, you need to make sure to include costs such as implementation, support fees, integration costs, customization, etc. OOTB marketing teams are very good at masking these long-term costs knowing that once they get the initial sale, it’s hard for you off (also known as vendor lock-in).

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