8 of the Best Ways to Control Costs as a Software Development Agency

• By Katy Flatt
• 17-03-2023
• Software

Starting a software development agency is the first step to building a successful business. Once you've found a gap in the market or a problem to solve, you can create a product that addresses those needs. After that, the challenge lies in building a steady customer base and making a profit.

Meanwhile, you must keep your business afloat and maintain enough capital to cover short-term expenses. Consider rent, utilities, salaries, advertising, professional services, and other ongoing costs. Also, consider the rising inflation rates and the tech talent shortage, which can affect your budget, too.

You may still need to cut costs even if you're an established business. After all, there's a reason why tech giants like Salesforce, Google, Dell, and Amazon are laying off thousands of people. However, this doesn't mean you should follow their lead and downsize your team.

With some planning, you can keep your staff and create better products while trimming your budget. The key is to think outside the box and be open to change.

Cost-Cutting Strategies for Software Development Agencies

The current economic landscape impacts companies across most industries, taking a toll on their finances. Software development is no exception.

For example, a 2022 Blue Ridge Partners survey found that 90% of small and medium-sized SaaS agencies didn't raise their prices over the past year. Moreover, only 40% of large companies increased prices during the same period.

Inflation is at its highest point in nearly four decades, and you cannot afford to leave money on the table. You may have to charge more for your products or services, cut your marketing budget, or find new working methods.

At the same time, you must be willing to go the extra mile to retain your best customers. Building lasting relationships with potential partners, vendors, and industry experts is just as important. Doing so allows you to capitalize on each other's strengths and deliver better services.

Trying to figure out where to start?

Track Your Monthly Expenses

First things first, try to determine where your business is now and where its money goes.

Start with essential business expenses, such as rent and utilities. Let's see a few examples:

• Salaries and benefits
• Software and equipment
• Office maintenance
• Marketing and advertising
• Accounting, legal advice, and other professional services

Out of these expenses, salaries and benefits are typically the largest and impact a company's budget.

Your team may include software engineers, developers, project managers, graphic designers, and more. Do you need so many people on board? Can you automate certain operations or outsource non-essential functions?

We're not saying you should lay off people. However, you can switch to a hybrid work model or reduce work hours to reduce costs.

For example, you could transition to a four-day workweek or tell your staff to visit the office for meetings only. This approach allows you to share your workspace with another company, split the rent, or sublet your office.

1. Consider the Cost of Software Development

Next, consider the technologies and equipment needed for daily operations—and see where you can save money.

These expenses may include productivity tools, software licenses, servers, code editors, cloud services, design tools, and more. You may also be using Continuous Integration and Delivery (CI/CD) tools, graphic design tools, or VoIP services, depending on your customers' needs and the requirements of each project.

Determine which tools are necessary, irreplaceable, and which are convenient or nice to have. After that, look for free or cheaper alternatives to the latter.

For example, you could use open-source software instead of proprietary software wherever possible.

If you normally use Jira for project management, consider switching to Redmine or Kanboard. Both tools are free and open source. Jira is relatively inexpensive, but the costs can increase in the long run.

Likewise, you could switch to a free background remover, free video conferencing tools, free messaging apps, etc. With this approach, you'll save hundreds or thousands of dollars per year without compromising quality.

2. Automate as Much as Possible

Automation often leads to increased efficiency, which translates into lower costs.

For example, marketing automation can boost sales productivity by 14%, reduce marketing overhead by about 12%, and improve campaign targeting.

This technology may also streamline lead generation, customer service, inventory management, and other business operations. At the same time, it reduces human error and can free up employees' time, allowing them to focus on what matters most.

Software developers use automation tools to streamline the processes of building, testing, and deploying code, among other aspects. Some tools can even generate code, reducing the need for manual work.

You can also automate the following operations:

• Testing processes (e.g., unit testing, performance testing)
• Requirements management
• Configuration management
• Quality assurance
• Software deployment
• Continuous integration and delivery
• Infrastructure as Code
• Virtualization

AWS Elastic Beanstalk, for instance, allows developers to automate software deployment and scale web applications. SonarQub, on the other hand, is used to automate code analysis and identify bugs.

Remember, you can also leverage automation to streamline marketing, advertising, bookkeeping, lead nurturing, and other business operations—not just software development.

As a side note, these tools can be difficult to set up and often involve a steep learning curve, but your efforts will pay off. Once you’ve got the ball rolling, getting things done and growing your business will be much easier.

3. Go Agile to Get More Done Faster

The way you work can impact your finances, too.

Take project management, for example. Agile, Waterfall, Six Sigma, and other methodologies can drive efficiency and reduce project costs.

Agile is widely used in software development because it enables teams to work in small increments and make changes as needed, leading to better outcomes. This methodology also promotes collaboration between developers, stakeholders, and customers, ensuring transparency and timely feedback.

Most importantly, Agile encourages open communication between teams and stakeholders, which can help prevent project delays or failures. This approach allows you to constantly test your processes, shift strategies quickly, and deliver more value.

Marc Danziger, the Senior Director of Agile Delivery at Eliassen Group, says Agile projects are often better and more cost-efficient than traditional projects. They result in fewer errors and allow teams to identify and solve any issues early in the development process.

Agile teams prioritize tasks based on their importance and urgency, which allows them to focus on the most valuable work. As a result, they're likely to save time and money on low-priority tasks that deliver little value. Plus, they can quickly release new features and updates, reducing the time to market.

4. Capitalize Software Development Costs

The Agile methodology has its perks but can make it harder to capitalize on software development costs. The project scope may not be well-defined from the get-go, so you won't know which costs you can capitalize.

Second, this methodology involves delivering work in small increments, making it difficult to track the costs eligible for capitalization. Third, its emphasis on ongoing maintenance poses further challenges from an accounting standpoint.

Nonetheless, Agile teams can still leverage software development cost capitalization. They have to determine which costs related to software development can be recorded as an asset, or capital expenditure, on the company's balance sheet. Therefore, accurate tracking and reporting are of utmost importance.

For example, software companies can capitalize on the costs related to developing internal-use software, including materials and services, interest, payroll, coding, testing, and more.

These products and services deliver long-lasting benefits over several years; therefore, you can record them as assets. By comparison, the resources used at the pre-coding stage should be recorded as expensed costs and deducted from a company's annual revenue.

Capitalized costs result in higher cash flow on the income statement, making a company appear more profitable.

This practice also allows you to spread the costs of development over time, which can improve your return on investment (ROI) and other financial performance metrics. Moreover, it allows you to allocate resources better and identify areas for improvement.

5. Mitigate Cybersecurity Risks

Safeguarding your business against cyberattacks can indirectly reduce your expenses. However, these events can take a toll on your finances, resulting in revenue loss, fines, or lawsuits. A data breach could ruin your company's reputation and increase customer churn.

Back in 2018, over 40% of cyber attacks targeted small businesses. However, this number increased following the Covid-19 lockdown, putting even more on companies worldwide.

Cyberattacks cost small businesses approximately $25,600 per incident. Data breaches, on the other hand, can lead to revenue losses of nearly $3 million for companies with fewer than 500 employees. The longer it takes to identify the breach, the higher the cost.

Many software development agencies use the latest technology to prevent cybercrime, but more is needed. As an entrepreneur, you must train your staff on cybersecurity, use a Sender Policy Framework (SPF), and limit account access.

For example, implementing an SPF can prevent hackers from using your domain name to send fake emails to vendors, clients, and other third parties. This practice may help prevent spam, phishing, and data breaches while improving email deliverability.

Go one step further and enforce signed software execution policies to secure entry points properly. Meanwhile, implement a Zero-Trust system to limit and control user access.

6. Adopt DevOps Practices

DevOps revolves around automation, collaboration, and shared responsibility. Think of it as a set of practices that allows teams to break down silos, cut costs, and get things done faster and better.

This work philosophy can lead to more frequent software releases and updates, ensure seamless performance, and streamline routine tasks. At the same time, it drives innovation, offering a competitive advantage.

DevOps teams also report fewer errors, increased efficiency, and higher engagement. Plus, they're better able to manage unplanned work and fix issues early in development. Moreover, those who excel at DevOps deploy 106 times faster than low-performers.

For example, this approach encourages collaboration and open communication between teams. Therefore, it can improve teamwork and speed up product delivery, reducing development costs.

However, DevOps is about more than automation or using the right tools. It also requires a cultural shift and specific practices. The ability to see things from another's perspective, work as one unit, and commit to continuous learning is just as important.

7. Outsource Non-Core Activities

A 2020 Deloitte survey found that 70% of companies turned to outsourcing to cut costs. About 40% wanted more flexibility, and 20% took this step to increase the speed-to-market.

Organizations across all industries leverage outsourcing to save time and money. With this strategy, you'll have access to a larger talent pool and cut overhead costs. Of course, having an in-house accounting department and marketing experts would be nice, but you'd be better off outsourcing these roles.

For example, a marketing manager has an average salary of $114,600 annually, plus benefits. That's a lot of money for a small or medium-sized business. A smarter option would be to outsource your marketing to an agency or hire freelancers on a project basis.

Generally, it's best to outsource non-core activities.

So, if you're a software development agency, consider reaching out to third parties for:

• Accounting and bookkeeping
• Marketing, advertising, and PR
• HR and payroll
• Administrative tasks (e.g., data entry)
• Customer support
• Legal services
• Market research

By doing so, you'll be able to focus on what you do best and bring the costs down. Then, as your business grows, you can expand your services without hiring additional staff.

Maximize Your Profits and Cut Business Expenses

Cutting costs is more important than ever, no matter your industry or business size. With the recession looming, securing cash flow and reducing unnecessary expenses is in your best interest.

Small changes, such as switching to open-source software and focusing on reusable code, can make all the difference. Better yet, go Agile and embrace DevOps to cut costs further and maximize profits.

These cost-saving strategies can also lead to greater efficiency, better collaboration, and fewer mistakes. The result? Higher-quality work, happier customers, and increased revenue.

Last but not least, don’t try to change everything at once. DevOps and other processes take time to implement and require ongoing effort. Instead, take one step at a time, identify areas for improvement, and adjust your approach as needed.