How to Calculate the ROI of Your Custom Software?

According to a Deloitte study on digital transformation, 73% of respondents say that the inability to define reliable metrics is the main obstacle to calculating the ROI of their technology projects. Yet knowing how to calculate the ROI of your custom software is essential to justify a strategic investment, convince your partners and ensure long-term profitability.

In this guide, we present a clear 6-step method to measure the profitability of your custom software, with numerical examples adapted to the Quebec context and the realities of the Canadian market.

What is the ROI of custom software?

The return on investment of custom software goes far beyond the basic formula (Gains - Costs) / Costs. That simplistic approach ignores intangible benefits, which often represent the majority of the value created.

For a more comprehensive view of the financial aspects, see our guide on the cost of custom software, which details the expense items to anticipate and the pitfalls to avoid.

Method to calculate the ROI of your custom software in 6 steps

Step 1: Estimate initial costs

The initial investment in custom software is not limited to development time. It includes several essential stages: analysis, design, UX/UI, quality assurance, as well as deployment and user training.

According to Exolnet data on software development in Quebec, costs are distributed as follows:

• Small-scale project: $75,000 to $150,000 CAD

• Medium-scale project: $150,000 to $500,000 CAD

• Large-scale project: $500,000 to $1.5M CAD

• Very large-scale project: $1.5M CAD and up

Step 2: Estimate recurring costs when calculating the ROI of your software

Beyond the initial cost, you must budget for recurring expenses that directly affect the project's long-term profitability. These include:

• Maintenance and monitoring: on average between 6% and 10% of the initial cost, to be budgeted annually.

• Hosting, backups and support: variable depending on the complexity of your infrastructure, your security needs and the traffic on your application.

Custom software typically has an expected lifespan of more than 10 years. For a more rigorous ROI calculation, it is therefore recommended to include these recurring costs over the estimated lifetime of the solution, taking inflation and technological evolution into account.

Step 3: Estimate provincial and federal grants

In Quebec, several tax credits, grants and loans can significantly improve the ROI of custom software. When used well, they can cut a project's real cost in half (and sometimes more).

Here are some examples (September 2025)

Grants & loans:

• ESSOR – Component 1B – For modernization, equipment purchases, etc.

• PSCE – To support the commercialization of Quebec companies

• Fall internships & Novascience – To finance interns, juniors or seniors in scientific and technical fields

• Départ – Investment, technological transition and innovation projects; a very localized program (verify availability for your region)

Tax credits:

• C3i – 25% investment and innovation tax credit

• CDAE-IA – 30% for electronic business development (AI — only from 2026)

• PAMT – Support for employee training (including partial wage reimbursement)

• SR&ED (Canada) – Up to 69% for your R&D projects

• NRC IRAP – Funding for technological innovation

Depending on your project and eligibility, these incentives can significantly reduce the cost of your custom software. For example, with a $50,000 grant, a project estimated at $300,000 CAD would see its net cost drop to about $250,000 CAD. This amount does not include the time required to obtain the grant, but it can considerably shorten the payback period and improve the project’s overall profitability.

Step 4: Quantify direct gains

Measurable savings form the basis of the ROI calculation. For example, in Quebec, the median wage for administrative officers is around $28/hour; to simplify the calculation, we’ll use $28/hour.

Automating repetitive, non-value-added tasks generates immediate gains. For a Quebec company, saving 10 hours per week equals $14,000 CAD in annual savings (10h × 50 weeks × $28), not including employer-related costs. This direct approach significantly improves operational profitability.

Step 5: Estimate indirect gains

Beyond direct savings, custom software also helps reduce many hidden costs. These losses, often hard to measure, nevertheless represent a significant portion of operational expenses. We are talking about duplicate data entry, manual errors, execution delays, or costs related to employee turnover.

The cost of poor quality

In businesses, errors and rework represent a cost item that is often underestimated. Missing fields, incorrect references or manual validations slow the whole process. According to the American Society for Quality (ASQ), the cost of poor quality can represent up to 15% to 20% of an organization’s revenue, and sometimes more in certain sectors.

Here’s a concrete example: if 10 managers lose 2 hours per week correcting or re-entering data, at an hourly rate of $50, that equals $50,000 CAD in annual losses. By automating these steps with custom software, that amount becomes a tangible gain in the ROI calculation.

Turnover costs and talent retention

Another intangible ROI factor is employee retention. A modern, ergonomic, centralized software improves team satisfaction, which can significantly reduce staff turnover.

According to Adecco Canada, replacing an employee costs between 10% and 30% of their annual salary, taking recruitment, training and productivity loss into account.

For example, for a position paid $60,000/year, this represents $6,000 to $18,000 CAD in avoided costs per departing employee. Reducing turnover through good technological tools thus becomes a long-term profitability lever.

Reputational cost and customer retention through the ROI of custom software

One of the hardest-to-measure costs for ROI is reputation and customer retention. When a client perceives service as unreliable or unsatisfactory, they may choose not to renew their contract, reduce purchases, or turn to a competitor. Losing that client not only causes immediate lost revenue but also the loss of recurring revenue and future opportunities.

For example, if a client generates $100,000 CAD in annual revenue and decides not to renew their agreement, the company loses that recurring revenue as well as the long-term value of the relationship (CLV – Customer Lifetime Value). Such a loss therefore has a disproportionate effect on overall ROI.

There is also an indirect effect: a dissatisfied client shares their negative experience with their network or on public platforms, which can impede new client acquisition and damage the brand over the long term.

Reputational cost is measured by estimating the financial losses related to lost customer trust. To simplify, you can use the following formula:

Reputational cost = (Average annual revenue per client × Average client relationship length in years) × Number of lost clients

In some sectors, this reputational cost is added to contractual penalties. For example, a supplier to large chains like Home Depot may be fined $5,000 per day of delay in receiving merchandise. Five days of delay already represent $25,000 CAD in direct savings if the company manages to avoid them thanks to a better management system. Imagine if these recurring delays cause the loss of the contract. Losses can then amount to hundreds of thousands of dollars.

The cost of non-competitiveness

Another often overlooked aspect is the cost of not being competitive. A company that delays modernizing its tools or continues to use inefficient systems falls behind its competitors. This gap can translate into:

• a loss of market share if clients prefer faster, more reliable suppliers,

• increased margin pressure, because prices must be lowered to compensate for poorer service,

• a decrease in innovation, due to lack of time and resources freed by automation,

• and, in the long term, reduced attractiveness to talent, who choose better-equipped companies technologically.

In short, custom software that enhances reliability, transparency, on-time delivery and competitiveness not only reduces immediate costs but also preserves customer trust, protects company reputation and ensures long-term competitiveness.

Step 6: Calculate ROI and payback period

The classic return on investment formula is as follows:

ROI = (Total benefits – Total costs) ÷ Total costs × 100

In addition, the payback period is calculated by dividing net costs by annual benefits.

Concrete example – Quebec SME

Imagine an SME that invests $450,000 CAD in developing custom software, with the project taking one year to complete.

• Initial investment: $450,000 CAD

• Grant or tax credits (10%): $45,000 CAD

• Net project cost: $405,000 CAD

• Annual direct gains: $150,000 CAD

• Annual indirect gains: $100,000 CAD

• Annual recurring costs: $45,000 CAD

Year 1: the investment

The company invests $450,000 CAD and receives a $45,000 CAD grant, reducing the net cost to $405,000 CAD. No benefits are generated yet because the software is under development.

Year 2: start of gains

The custom software is in place and begins to generate gains.

• Annual benefits: $150,000 (direct) + $100,000 (indirect) = $250,000 CAD

• Recurring costs: $45,000 CAD

• Net: $250,000 – $45,000 = $205,000 CAD

About $200,000 CAD remains to be recovered (405,000 – 205,000). The ROI is still negative, but the company has already covered roughly half of its investment.

Year 3: return on investment

Thanks to optimizations and new features added with recurring cost budgets, annual gains increase:

• Annual benefits: $275,000 CAD

• Recurring costs: $45,000 CAD

• Net: $275,000 – $45,000 = $230,000 CAD

By cumulating the two years of benefits ($205,000 + $230,000), the net investment of $405,000 CAD is exceeded. The software therefore achieves a positive ROI as early as year 3, and profitability continues to grow thereafter.

5‑year ROI summary

• Year 1: investment in progress, ROI negative

• Year 2: $205,000 CAD in gains, ROI still negative

• Year 3: $230,000 CAD in gains, investment repaid, ROI positive

• Year 4: $230,000 CAD in gains, cumulative ROI +55%

• Year 5: $230,000 CAD in gains, cumulative ROI +110%

The 5‑year ROI calculation shows that custom software is a strategic and profitable investment, not only covering costs by the third year but also generating lasting added value for the company.

Summary table: method to calculate ROI for custom software

Profitability optimization by sector

Sector example: a manufacturing company

Consider a manufacturing company of about 200 employees that decides to automate management of equipment maintenance. Before automation, unplanned downtime represents several hours each week, causing production delays and significant additional costs.

With a custom maintenance scheduling software, these interruptions can be reduced measurably. In real deployments, a well-executed program delivered roughly a 20% average reduction in downtime, according to this McKinsey analysis.

The expected outcome is an ROI achieved in 2 to 3 years, when technology, processes and team adoption are well aligned. Gains then translate into sustained increases in productivity and competitiveness.

Sector example: a healthcare clinic in Quebec

In a private health clinic, each appointment represents direct revenue. Custom software that automates appointment booking and records management reduces time spent on administrative tasks and frees up time to serve more patients.

Imagine a clinic that handles 300 appointments per week, with an average duration of 30 minutes each. If automation saves 2 minutes per appointment, that equals 500 hours freed per year.

Those 500 hours correspond to 1,000 additional 30‑minute appointments. With an average revenue of $200 per appointment, the potential represents $200,000 CAD in additional annual revenue.

The potential is attractive, not to mention increased patient satisfaction and reduced administrative time.

Also discover our experience in developing custom health and pharmaceutical projects, where compliance and performance requirements greatly benefit from tailored software solutions.

Conclusion

Calculating the ROI of custom software is not a simple financial exercise; it is a strategic process that enables informed decisions and justifies a major investment to your leadership or partners.

By carefully evaluating initial and recurring costs, incorporating available financial assistance in Quebec, and measuring both direct gains (automation, time savings) and indirect gains (employee retention, reputation, competitiveness), you obtain a complete view of the value created.

Most well‑designed projects achieve a positive ROI by the third year, then generate cumulative benefits that turn the software into a genuine strategic asset for the company.

In short, custom software is not limited to cost reduction: it is a lever for growth, efficiency and competitive differentiation that ensures your organization’s long‑term profitability.

Ready to evaluate the ROI of your project? Contact us for an initial exploratory meeting.

FAQ

What is the average ROI of custom software in Quebec?

The ROI of custom software varies widely, but a well‑designed project that prioritizes the highest‑value features typically exceeds 100% after the second or third year and can surpass 400% after a few years.

How do you calculate the profitability of custom software in Quebec?

Profitability is calculated by comparing costs (initial and recurring) to direct and indirect gains, while taking into account available grants and tax credits.

How long does it take to recover the investment in custom software in Quebec?

Generally, custom software reaches a positive return on investment within 2 to 4 years. Beyond this period, it often becomes harder to justify additional costs to management or the board.

What are the ROI advantages of custom software vs. SaaS?

Custom software generally offers higher long‑term ROI thanks to the intellectual property and competitive advantage it generates, as well as higher direct gains since it is designed to meet 100% of the company’s needs, unlike SaaS where recurring costs accumulate without creating an asset.