Software is expensive – Or maybe not?
Companies that have experience with software development and even depend on it to a large extent, know that a well-functioning software organization means some costs that need to be carefully planned. And the funds to cover these costs must also be generated. An important aspect of business management which can be existential, especially for SMEs.
But what does “cost” of software development actually mean? We have done the math.
The largest position is definitely the team, i.e. the employees who implement the requested software in the company. These are mostly product and business applications which are almost always provided and maintained for customers and increasingly also for internal processes.
Software developers as engineers are everywhere in a certain salary range which is very justified, considering performance, criticality and impact on business success. Of course, there are numerous factors that influence market wages, but we won’t go into those here. Everywhere means in all possible employee markets around the globe.
So the biggest factor affecting software costs is the full cost of labor and, as part of that, compensation. However, the gross salary or the net payout are not sufficient to determine the cost picture. In addition, there are social insurances which can account for up to 18% of the payroll in Switzerland (gross-gross salary).
Full costs matter
But if I as a company maintain a development team, there are a lot of other additional costs. After all, the employees have needs that have to be covered. These include issues such as workspace, furniture, infrastructure, and work tools. If more space is needed, there will be higher rent and management costs. In addition, consumables and office supplies are provided and used; software developers, for example, are known to tend to consume a lot of coffee.
In addition, employee development and continuous training is an important issue, especially in software development. Costs for courses, certificates, etc. must therefore also be listed. And if you have a development team or a software department, a management role is usually needed to lead and empower the team. If you add all these positions to one employee, the average additional cost is 30-35% of the payroll.
As a result, a factor of 1.5 can be added to the gross payroll to obtain a reliable cost picture per employee, i.e. the full personnel costs.
The price of the productive working hour
The analysis becomes exciting when you calculate how much a productive working hour of the developer costs the company. That means we take the so-called target hours per year and subtract vacations, average absences, unproductive hours for training, events and internal projects. Our experience shows that on average around 1,800 productive hours are worked per year.
If you divide the full cost of personnel by these productive hours, the result is the full cost of one hour of development in the software project.
As a software service provider, we naturally want to understand how our offer prices, i.e. hourly rates, relate to the full personnel costs per hour. It is important to understand that the quotation price includes all cost factors. This means that Riwers itself covers all wage and additional costs within the scope of the employment relationship with the employee.
CASH IS ON THE STREET – PICK IT UP!
For companies, the result is now very exciting: we have calculated that we generate on average 30-40% less costs than internal teams in companies. This means that software development with developers and teams from Riwers can free up to 40% of cash that can be directly invested elsewhere. For example, in the development of the core business, the products, in marketing, public relations, team building, events, training and everything else that is good for the company.
It is essential to note that the quality and quantity of delivery per time remains the same. This means that RIVER’s employees are just as carefully selected and have just as much training and experience as your own developers.
However, personnel costs are only one, albeit an important, aspect. The maintenance of a software organization triggers many other cost items that we have not even included here. Here are a few examples:
- Establishment of business processes for software development
- Continuous documentation and maintenance of process assets
- Training, implementation and maintenance of processes
- Introduction, maintenance and licensing of tools
- Ensuring data security
- Recruiting costs (external and internal expenses)
Added value for your business thanks to optimized software sourcing
The conclusion: With a strong software partner like Riwers, a company can generate significantly more business value. Cost-optimized software development in the extended workbench model frees up resources that can be invested directly in the core business or other important areas of the company while maintaining the same level of quality.
Do you want to develop clever software and generate more competitive advantages for your company? We will be happy to support you.
At Riwers we have made a sample calculation of the full costs based on empirical values which we would be happy to share and discuss if you are interested.