How to calculate the ROI and payback period of custom software before you build it: what to count as benefit and cost, a worked example, and the costs most people forget.
Short answer. ROI = (benefit over the period − total cost over the period) ÷ total cost. For custom software, count the staff hours saved, errors avoided, revenue enabled and subscriptions replaced, against Discovery, the build, a second phase, hosting, support and your own team's time. Use the same period on both sides, usually three years, and look at the payback period too. At Magora Discovery, which fixes the cost side, starts from £3,000; a first release from £10,000; a full production system typically £25,000–£60,000.
This guide is for owners, finance directors and managers who need to justify a software project, or decide not to do it.
Last checked: 2 November 2026.
The two numbers to calculate
- ROI = (total benefit − total cost) ÷ total cost, over the same period.
- Payback period = the month when the cumulative benefit equals the total cost so far.
What to count as benefit
- Time saved: hours per week × the loaded hourly cost of the people doing the work.
- Errors avoided: rework, refunds, missed invoices, penalties.
- Revenue enabled: more orders handled, faster quotes, a new product or channel.
- Costs removed: subscriptions, spreadsheets and tools the software replaces.
- Risk reduced: compliance, data protection, key-person dependency. Hard to price, so list it separately rather than inflate the number.
Real benefits are usually narrower than the brochure version. For example, BodySync, an AI treatment-plan tool we built, reports a 65% reduction in time spent on treatment plans and 35% fewer manual input errors in UK clinics. Numbers like these, measured on one task, are what an ROI case should rest on.
What to count as cost
| Cost | Magora band or typical figure |
|---|---|
| Discovery: scope, architecture, fixed-price quote | From £3,000, 2 weeks |
| First release (MVP) | From £10,000, 6–8 weeks |
| Full production system | £25,000–£60,000, 3–6 months |
| Second phase after launch | Typically 30–70% of the first release |
| Hosting and third-party services | Depends on usage |
| Support and maintenance | From £1,000 a month |
| Your team's time | Product owner, testing, training |
Sources: Magora pricing and MVP cost pages, 2 November 2026. Figures exclude VAT.
We build bespoke software and modernise legacy systems so they fit how your business really works. First release in 6–8 weeks; developers from £49/hour.
A worked example
Illustrative figures, not a client project. A business has five people who each spend six hours a week on an order and invoicing process in spreadsheets, at a loaded cost of £30 an hour.
| Item | Over 3 years, from the start of the project |
|---|---|
| Time saved after launch: 5 people × 6 hours × 46 weeks × £30 an hour = £41,400 a year; the software removes two-thirds of it, for 33 months | £75,900 (£27,600 a year) |
| Build: Discovery £3,000 + production system £35,000 | £38,000 |
| Second phase (30% of the build) | £10,500 |
| Support: £1,000 a month for 33 months after launch | £33,000 |
| Total cost | £81,500 |
| ROI over 3 years | About −7%: the project does not quite pay back in three years |
| Payback | About 40 months from the start |
On these numbers the project is marginal, and that is a useful answer: either the scope comes down (a smaller first release, support only as needed), more benefits are found (errors, faster invoicing, a subscription removed), or the project waits. Run the same calculation for the off-the-shelf option before deciding; our guide off-the-shelf vs bespoke software covers that comparison.
How to make the estimate believable
- Measure today's process for two weeks before estimating savings.
- Count only work the software actually removes, not the whole job.
- Use the same period for costs and benefits.
- Show a cautious and an expected case.
- Get the cost side fixed in Discovery rather than guessed.
Need the cost side of your business case? Send us a short brief: a free working prototype comes first, and Discovery, from £3,000, gives you a fixed price to put into the calculation. See bespoke software development.
Frequently asked questions
How do you calculate the ROI of custom software?
ROI = (benefit over the period − total cost over the period) ÷ total cost. Count benefits such as staff hours saved, errors avoided, revenue enabled and subscriptions replaced; count costs such as Discovery, the build, a second phase, hosting, support and your team's time.
What is a payback period?
The number of months until the cumulative benefit equals the total cost. It is often easier to discuss with a board than a percentage ROI.
What costs are usually forgotten?
The second phase after launch (typically 30–70% of the first release in our estimates), hosting and third-party services, support from £1,000 a month, and the time your own staff spend on the project.
Can I estimate ROI before the software is built?
Yes, roughly. Measure today's process first: how many hours it takes, how many errors happen and what they cost. A Discovery sprint, from £3,000, turns the scope into a fixed price, which gives you the cost side.
Ekaterina Mironova
Meet Ekaterina, our Project Maestro at Magora, turning project chaos into symphonies of success. With a dash of strategy and a sprinkle of agility, Ekaterina ensures projects dance to the rhythm of deadlines while leaving clients with a standing ovation.
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