Tl;dr If you are building a product that is core to your business and you have developers who are experts in this field, build it. Buy everything else. Unless you love pain and want to waste thousands of dollars.
You can't do everything yourself. Innovation is best focused on your core market offering. In these areas, you should build.
Here are two examples of companies that have the capability to build:
- Apple: Has expertise in software and hardware. Does not build and maintain its own accounting system. Accounting is not their core offering.
- UPS: Has expertise in logistics. Builds its own logistics systems because software companies do not have the scale to understand their needs. Logistics is their core offering.
By attempting to build products outside your core focus, you could end up wasting significant time and resources when the alternative, buying, costs much less over the long term.
Here are a few common problems that can be solved with an external solution:
- Omni-channel data accuracy
- Launching and updating on-site promotional campaigns
- Tracking customer behavior
- Improving customer experience
When you seek a solution, your research unearths tools that seem to fit, but may seem too costly. This is when the question “should I build an internal tool or buy it?” comes up.
Because solution providers can’t always solve every business need, it's easy to think of custom software development as the best time and money saver. It’s usually not. You need to understand the hidden costs.
The following hypothetical situation will illustrate why a custom build outside of your core business is not business savvy.
Clarity in numbers
A retailer wants to explore using social incentivization to increase online revenue. AddShoppers On-site Marketing Platform (OMP) meets many of their needs. They’re quoted a $60,000 annual contract ($5,000/mo) based on a range of factors.
The retailer thinks hiring software developers to build something similar could be cheaper.
On average, an experienced software engineer earns $100,000/year. Let’s assume they hire two; their monthly cost is now ~ $16,600/mo.
Design, planning, architecture, development, and testing often takes 8 months before it is ready for user adoption. Without generating any revenue, the initial build would cost $132,800 in labor plus variable costs.
They can anticipate 7 days/mo for upkeep (not including increased issues during peak shopping times of year) at $4,150/mo.
So, going off the bare minimum of 7 days/mo, annual maintenance would be $46,000. Their annual contract with AddShoppers would be $60,000. Maintaining an internal software solution would be 76% of their total AddShoppers contract price.
It is unlikely two resources focused on maintaining the platform will be able to keep up with a vendor’s solution using 7 days per month. The duo will then need to exceed each upcoming innovation by a material number to incrementally justify its original cost.
The table below depicts AddShoppers launching new experiences and technology quarterly and how the impacts can play out over the course of a year.
Over the course of a calendar year, a $13M dollar business could miss out on almost $1M in incremental gains.
Still not convinced?
Reflect on these 4 questions when weighing building vs buying:
- What problem are you trying to solve?
There is no shortage of pre-existing solutions for common issues retailers run into. It’s unlikely that your business has a roadblock a vendor can’t resolve.
This is even truer for companies serious about product innovation and development. Find a company willing to enhance product functionality from client business needs.
- What’s your timetable?
If you’re in a time-crunch and need results fast, a custom build won’t work. By the time it’s built your needs will have likely shifted.
From ideation to launch (and depending on your legal process), AddShoppers OMP can go live on a site in less than 30 days. Our simple copy-and-paste code sits on top of the site which means your team does not need to map new user journeys or develop a new UI.
After installation, 150 pre-built campaign templates can go live within minutes. This option generates results quicker and fast-tracks you to your end goal.
- Do you currently have (or can you hire) individuals that can build and manage the desired solution?
Innovative technologies have spent time and done the research required for building a product to resolve a variety of issues.
Our team maintains, optimizes, and tests our product regularly because that's our focus. You would need to reassign current resources or hire individuals to focus on your build.
Building an analytics solution that has nothing to do with your core product makes no sense. You’ll waste time, revenue, and sacrifice potential product improvement that would help boost business. Let a solution provider handle the secondary components of your business.
As owner/operators and industry consultants, our founding team has over 20 years combined experience operating eCommerce businesses. Our largest clients net over $100 million in sales annually online and our technology is live on thousands of sites. This gives us unparalleled data to learn from.
That kind of experience is costly to bring in-house and that kind of data is tough to replicate.
What’s your build vs. buy cost analysis and ROI potential?
You can calculate the rough cost of a build vs. buy with Baremetrics ‘Build vs. Buy Calculator’.
We’ve already covered the laughable cost of building, above. Buying a solution like AddShoppers is the best option for your KBOs.
AddShoppers’ ROI guarantee states “Generate 10x your revenue from AddShoppers full subscription. If we don’t meet our guarantee, keep our service active on your site until the guaranteed 10x increase is met.” We have this guarantee because we know that our platform delivers dramatic results.
Learn how Nine Line Apparel smashed their 10:1 ROI guarantee in less than 30 days by buying marketing technology. Register here.