How to Calculate ROI and TCO for Successful Low Code Adoption?
In 2023, the low code market’s estimated value is set to hit $26.9 billion, marking a notable 19.6% jump from the previous year. Low code platforms promise rapid application development, but what’s the actual cost? Discover the peculiarities behind return on investment (ROI) and the total cost of ownership (TCO) to find the value behind the buzz.
The growing popularity of low code platforms
Low-code platforms offer a more intuitive way to build software. Rather than getting bogged down in coding details, developers can simply “piece together” an application with minor coding effort. This approach isn’t just faster, it also opens the door for those who aren’t code wizards to craft web and mobile apps.
Low-code platforms have been on the rise since 2011. But with the recent global pandemic shaking things up, their appeal has surged. More businesses and enterprises are turning to them as a convenient solution in these unpredictable times.
How to calculate the ROI for low code platforms?
Return on investment, or ROI, is like a report card for your investments. The formulas show how much you have earned compared to what you put in. It’s a snapshot of how well an investment is doing, whether that’s in stocks, expanding a business, or real estate.
The best part? It’s easy to calculate and understand, and suitable for various scenarios. If the ROI is positive, you’re on the right track. But if there are other options with even better ROIs, you might want to reconsider. Conversely, negative calculations are a red flag, signaling potential losses.
Components of ROI calculation for low-code platforms
The overall ROI is determined by comparing the benefits to the costs associated with the implementation and maintenance of the platform. For a comprehensive calculation for low-code platforms, you would need to consider the following quantifiable components:
Increased productivity. Using a low-code platform can dramatically reduce the hours developers spend on a project. Over time, this can equate to several hundred, if not thousands, of hours saved.
Time saving. Development cycles include planning, designing, coding, testing, and deployment. Low-code platforms can simplify and expedite several of these stages, especially coding and testing. Traditional development can make updates a cumbersome process. With low-code solutions, updates can be more seamless and swifter.
Reduced development costs. Since low-code platforms minimize the need for extensive manual coding, the resources (both time and money) spent on coding tasks are substantially reduced.
Improved agility. The ability to change applications or processes in response to business needs, without going through lengthy redevelopment cycles, is crucial. Low-code offers this adaptability, allowing businesses to be nimble.
Project pivoting. When feedback stresses a need for change, or when strategic priorities shift, low-code platforms enable quicker pivoting of projects.
Fast Prototyping. One barrier to innovation is the time it takes to bring an idea to life. These solutions allow for fast prototyping, enabling businesses to test, iterate, and refine ideas rapidly.
Reduced time-to-market. Releasing apps or features faster than competitors can provide a distinct edge, capturing market share or addressing customer needs promptly.
Related post: How To Increase ROI With Open Source Low Code PlatformROI formula and its application to the low code scenario
The ROI formula is quite simple:
ROI=(Cost of Investment / Net Profit) ×100%,
where:
Net profit is the gain from the investment minus the cost of the investment.
The cost of investment is how much you initially spent on it.
Let’s break it down into a practical example.
Instead of hiring a couple of developers, which would cost approximately 150,000 in yearly salaries, the business decided to spend $100,000 on the low-code platform. This covers licensing, training, and initial setup costs. Because of this platform, the company no longer needs to hire two professionals which would have cost them more in salaries over the same period. Additionally, because of the speed and efficiency provided by the low code solution, the firm released an app that brings in an additional $50,000 in revenue.
Assessing total cost of ownership (TCO)
The total cost of ownership or simply TCO, is the evaluation of the costs related to buying, using, and eventually retiring that item. It measures the cost of a product across its entire existence. As a result, it provides a more accurate basis for estimating the value of an investment (cost vs. ROI) than the value of the purchase itself.
Elements of TCO calculation for low-code platforms
Initial costs
Licensing can be categorized into two main areas: software charges and revenue-related fees. Both will be a part of your expenses. The costs fluctuate based on the technology selected and the company’s scale.
Training. Educating users is essential in the software industry. This can encompass in-person sessions, online webinars, and written guides. Typically, training expenses for enterprise software surpass those for SaaS. This is because SaaS often offers online training coupled with a more user-friendly interface, making it simpler for stakeholders to grasp and integrate the solution into their operations.
Setup and deployment. Beyond just the software, setting up might require dedicated hardware, cloud resources, or other infrastructure investments.
Customization. Low-code platforms are flexible, but tailoring them to fit your operations might require developer hours, which adds to the cost.
Ongoing costs
Maintenance. It ensures that the platform remains compatible with other systems and free from bugs or security vulnerabilities.
Updates and upgrades. Vendors often release new features or improvements. While some updates might be free, major upgrades can come with added fees.
Support. Whether it’s a technical glitch or a user query, having access to vendor support is crucial.
Scalability. As the business grows, so will the software needs. Scaling might involve adding more user licenses, increasing storage, or enhancing performance.
Hidden expenses
Integration. If you’re planning to integrate the low-code platform with existing systems (like CRM, ERP, or databases), there might be costs related to integration tools or expert guidance.
Data migration. Transferring data from your old system to the new platform can be complex. It will require outsourcing or third-party services.
Potential vendor lock-in risks. Relying heavily on a single platform can lead to challenges if you decide to switch suppliers in the future. Migrating away could incur costs in terms of data export, system retraining, or potential contract exit fees.
TCO calculation formula and how to apply it to a low-code platform scenario
To calculate the TCO for a low code, the following formula is applied:
TCO = Initial cost (I) + Maintenance cost (M) + Remaining cost (R),
where
Initial cost means the purchase itself. This may include software or hardware, fees, and installments.
Maintenance cost is related to the occurring expenses, such as subscriptions or other fees.
The remaining costs are for training and education, system support, and legal or compliance charges are all linked to the asset.
Related post: Streamlining Software Development with Low Code in 2023How XME.fast code platform can drive high ROI and cut TCO
XME.fast code platform is a transformative solution capable of driving outstanding ROI and operational efficiency due to its open-source nature and a broad range of fully customizable and scalable templates.
The product proves its determination to facilitate digital transformations across industries, redefining how businesses derive high ROI and cut down on TCO.
With XME.digital, companies can effectively implement their ideas 53% faster than competitors, ensuring they remain ahead of the curve.
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A significant 47% boost in innovation launching speed.
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Streamlined API management, coupled with rapid integration and broad connectivity with multiple systems.
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