Software Cost Optimization: Top 8 Best Practices
The pressure is on for businesses to do more with less, especially in optimizing their tech-related expenses while maintaining top-quality standards and fostering innovation. According to my research of leading tech companies, to achieve this, adopting cost optimization strategies becomes paramount. It means taking a comprehensive look at the product development lifecycle, identifying areas for cost reduction, and ensuring your investments in technology are maximized.
Imagine this scenario: While building a rocket might seem exciting, sometimes a more practical approach, like using a bike, gets you to your destination efficiently. By prioritizing initiatives that enhance your technology investments, you can make the most of your resources.
Now, let me present to you different tech cost optimization strategies and explore how they can help you derive more value from your software development investments.
What Is Software Cost Optimization?
Many folks tend to confuse cost reduction and cost optimization, but they are two very different ideas. Cost cutting is a one-time measure taken in order to reduce expenses. For example, you may switch to a cloud service provider that offers cheaper solutions for you or choose a cheaper plan if your product doesn’t use the full potential of your current plan.
Cost optimization, on the other hand, is a continual process of reducing costs in order to maximize business value. This is especially important in software development since there are always a wide range of new features to choose from and budgets can balloon quickly.
What’s the best way to implement tech cost optimization?
Software companies, in particular, need to be structured around cost optimization in order to be successful. By continually evaluating expenses, they are able to reinvest those savings into other areas of the product and build at a much faster rate.
Source: Gartner
Here’s a handful of statistics that help highlight the need for cost optimization:
- 42% of entrepreneurs plan to utilize new cloud services infrastructure soon to control costs, according to a recent Rackspace report.
- By 2026, public cloud spending could account for more than 45% of all enterprise spending on tech, according to IDC. In August 2021, public cloud spending was less than 17%.
- Only 35% of surveyed organizations deploy consistent cost optimization frameworks across different functions, Gartner reports (as shown below). What’s the lesson? The time is now!
Source: Gartner
Overall, introducing tech cost optimization strategies promises to open a growth potential to SaaS businesses to maximize their resources.
Next, let’s define the elements of the framework to identify the areas that could benefit the most from tech cost optimization.
Need help optimizing your development costs? We’d love to put our expertise to work for you.
Why Do You Need a Cost Optimization Framework?
Not all cost-saving measures are equal. Some initiatives may offer significant savings and a positive impact, while others may come with a high price tag but low reward. This is where a cost-benefit analysis, a crucial element of cost optimization strategies, can be helpful. By objectively assessing the potential benefits and drawbacks of a cost-saving measure, taking into account factors like business value, cost-cutting, and budget constraints, you can make an informed decision about whether or not to pursue it.
The following assessment framework, integrating best practices, can be especially helpful in the early stages of planning, when you may have many different ideas on the table, including those related to operating costs, cost reduction, and cost efficiency. By ranking each option according to its benefit, cost, risk, and viability, considering elements like business units, cloud services, and software, you can quickly narrow down your options and focus your efforts on the most promising initiatives. In short, a cost-benefit analysis is a valuable tool for any startup founder or product leader who wants to optimize their bottom line and achieve long-term success through digital transformation and cost-effective measures.
Source: Cadlog
Key levers associated with tech cost optimization
- Potential Financial Benefit (small, medium, or large). Evaluate whether your given initiative will affect cash flow or generate savings.
- Business or Product Development Impact (negative, neutral, or positive). Define the impact of the initiative on the day-to-day operations of your team. The more distraction it will cause, the higher the chance that it won’t pay off.
- Time Requirement (long, intermediate, or short term). This lever describes how quickly you will get the results you want and whether you need to monitor progress weekly, monthly, or annually.
- Degree of Organizational Risk (high, moderate, or low). Ensure your initiative is compatible with your company’s organization and won’t need substantial changes such as layoffs or structural changes.
- Degree of Technical Risk (high, moderate, or low). Some initiatives may cause delays in system operation. This lever indicates how the change may impact the operating system, database, middleware, and applications.
- Investment Requirement (long, intermediate, or short term). Identify how much investment you need to make upfront to implement the cost-saving initiative.
Key Principles of Cost Optimization
- Accountability. Startups often view optimization through the prism of how to best supply the demand for technology, rather than how to use technology to achieve specific business goals. This approach creates a reactive culture, where tech is always playing catch-up instead of leading the way. Instead of reacting to business demands, leaders must take ownership and shift the culture within their company from reactive to proactive.
- Flexibility. In today's rapidly changing world, flexibility and adaptability are essential for success. Those who are able to embrace change and adapt quickly will be well-positioned for success in the future. In most cases, this means moving away from a focus on contracts that create fixed pricing and moving to a variable model.
- Financial Transparency. By making data about supply and demand more accessible and easy to understand, businesses can make more informed decisions that lead to better outcomes. This is particularly important for startups, which often have limited resources and need to optimize costs in order to be successful.
- Economy. Back to the bike example from earlier, your team may pay for rockets when they don’t really need them if they aren’t actively engaged in a cost optimization process. The review of technology tools, data structures, and infrastructure used in the product development process versus those appropriate for it may reduce waste.
- Rationalization. A rationalized approach to tech usage will prevent duplication of services different teams may use. If you need a bike for one team to ride on weekends and the other team for work days, you don’t need to keep paying for two different bikes.
- Analysis. In the core of cost management, there’s a complete view analysis able to cover any financial gaps.
Top 8 Strategies of Cost Optimization
Discover the top 8 strategies for effective cost optimization that can significantly impact your business’s financial health.
#1. Planning and time management in your team
Your tech team is your main resource to achieve your software development goals. Startups usually have limited budgets, so they should be sure that their team is highly professional and motivated to grow with the company. Proper planning, remote team culture and time management should aim to reduce waste and increase the motivation of the team.
#2. Align projects with company priorities
Right-sizing, auto-scaling provisioning, and cost-aware optimization are among the activities influencing the company’s performance and value growth. The lower the infrastructure spending, the higher the profit. However, tech infrastructure is also critical to the business objectives to drive top-line growth. That means cost optimization initiatives should not interfere with other company priorities.
#3. Gain awareness of your hybrid tech environment
Optimizing a service’s cost requires transparency in every component involved in its delivery. In fact, it is quite common that companies have no such visibility. For example, hybrid computing is common practice for most companies and services across the board can be transferred or deployed via public cloud services. But some companies fail to really understand what has been moved to the cloud already and what has the potential to do so in order to save costs.
#4. Rationalize operational tools
Whenever possible, each startup should seek to eliminate over-provisions in their infrastructure, but this of course is easier said than done. Initially, it’s difficult to estimate the best resources available in order to allocate new tasks and applications. Even if your software product is running properly at the initial stage, the tools necessary to keep it running will likely change over time. Therefore, it is important to continually assess and optimize (or decommission) overall assets.
#5. Establish clear cost structures
The most cost-efficient approach involves the identification of the cost structure of your operations. By separating costs into each individual component it’s easy to compare several alternatives with different costs in order to see which are of higher priority.
#6. Automate manual tasks
Automating tasks can save the team’s effort and concentration for more creative work. It goes beyond testing automation (ie QA efforts) and continuous integration and delivery. We’ve all experienced the frustration of trying to concentrate in the face of distractions so seek to automate manual tasks wherever possible.
#7. Adopt a cloud-first policy
Any business that wants to stay ahead of the competition needs to have a clear cloud-first strategy, integrating cloud services and multi-cloud solutions to optimize their business processes and reduce costs effectively. This means making the most of cloud-based solutions, such as SaaS, in order to improve efficiency, productivity, and an enhanced cost optimization process.
There are many advantages to adopting a cloud-first approach and implementing cloud budget management, such as best practices and cost optimization techniques. Perhaps the most significant is that it eliminates the need for on-premise data management and costly engineering infrastructure, addressing budget constraints effectively. This frees up technology teams, including tech asset management and software resources, to focus on more important business activities and innovative opportunities, while reducing business costs, optimizing business operations, and meeting evolving customer demands.
A well-executed cloud-first strategy, incorporating cloud computing resources, can transform a business by reducing operating costs, increasing cost savings, and enabling faster delivery times, contributing to business growth and improved business performance.
Amazon Web Services (AWS) is a prime example of a tech company excelling in software development cost optimization. Their cloud-first approach eliminates the need for costly on-premise data centers, and they efficiently manage their data centers to reduce operational costs.
AWS continuously monitors and optimizes costs using tools like AWS Cost Explorer and Trusted Advisor, offering granular billing down to the second to minimize waste.
AWS also provides various cost-saving options like Reserved Instances (RIs) and Spot Instances, which allow customers to commit to specific instance types or access unused capacity at lower rates. Their serverless computing with AWS Lambda lets users pay only for actual compute time used. Additionally, AWS educates customers with extensive resources and best practices for cost optimization, making them a leader in the cloud services industry with a strong focus on efficiency, cost-effectiveness, and innovation.
Read about how Airbnb powered cost visibility using the AWS Cost & Usage Report, optimized costs using Amazon S3 Intelligent-Tiering and Savings Plans, and gained insights that help it grow sustainably.
#8. Switch to remote working / offshore development
Offshoring is one traditional way to optimize technology talent costs. Global scale makes it possible to build offshore software development teams in a region that’s best for your needs and easy on your budget. However, you will need to invest in recruiting and operations overhead first or make sure you can trust a company that will hire top technology talent on your behalf.
Do you need a completely turnkey solution for offshore recruiting? We’ve got you.
How Can TurnKey Help You Optimize Costs For Your Startup?
84% of CFOs expect to spend more on personnel costs in 2022, according to the Gartner 2021 CFO Capital Allocation Survey. Yikes! As a result, a critical part of your tech cost optimization strategy is a cost-efficient but highly effective software development team.
Because TurnKey was founded by serial software startup entrepreneurs, we have a profound understanding of all the key pains of a startup, particularly as it relates to offshore development; as a result, we created a formula for how to build stellar remote development teams from day one.
One important way we do this is through our unique model, which is a cheaper/faster/better version of offshoring.
It means that our recruiting model is hyper optimized for startups and high growth companies. We custom recruit your entire dedicated development team, provide you with super transparent pricing, and then help give you the tools to dramatically reduce churn.
In other words, this is YOUR fully dedicated team, built entirely around YOUR needs, working within YOUR rules, and embedded in YOUR culture.
And we are headquartered in Silicon Valley so you always have someone local to call for any reason and at any time. We are YOUR partner.
Here’s how TurnKey helps startups to save costs on hiring.
Throne, a pioneer in smart portable bathrooms, needed a robust software foundation for its innovative hardware. They chose TurnKey to build their engineering team, consisting of a DevOps specialist, a Lead Full Stack Engineer, and a Firmware Engineer.
We have hired 5 total developers including tech lead, full stack, dev ops and firmware. For each hire, a strong pipeline of candidates was provided, and the TurnKey team performed a lot of pre-screening such that those that entered the funnel were strong and relevant. They also helped with setting salary comp, and closing. Finally they continue to provide HR services as well as legal admin services associated with employment of a geographically diverse group of developers.
The collaboration’s efficiency was remarkable, with an average hiring time of 37 days per role and 8 candidates screened per position.
The engineers recruited by TurnKey demonstrated remarkable proactivity, taking ownership of the product, and actively contributing to the roadmap. They seamlessly integrated into Throne’s core team, driving product development.
This partnership showcases how strategic talent acquisition can transform even traditional industries like portable sanitation.
Final Thoughts
A rigorous approach to cost management is essential for any product organization that wants to optimize value. And such prioritization makes it easier for budget holders to rank which software development costs to cut and which initiatives to fund. By taking such an approach to cost management, startups and high growth companies can be more efficient and effective in how they use their resources in the pursuit of software nirvana.
We are the offshore development experts—and we’d love to collaborate on all your cost optimization strategies.
FAQ
The ultimate goal of a cost optimization process is to maximize the value a software company derives out of its investment in development.
It is possible to achieve significant savings by rethinking existing software development processes and adopting more efficient methods of delivering services. This requires a careful analysis of where costs are being incurred and how they can be reduced without affecting the quality or quantity of the services provided. When done correctly, the strategic optimization of development expenses can help companies do more with less, making the most of their limited resources.
The 8 best practices of tech cost optimization are: master planning and time management, aligning projects with company priorities, gaining awareness of your hybrid tech environment, operational tools rationalization, establishing cost structures, automating manual tasks, cloud-first policy adoption, and using remote work (particularly offshore software developers) effectively.
The first step is to identify the goals of cost optimization with the proper internal decision makers. Then define all the financial benefits and potential risks, and weigh these against the time and investment requirements. Next, rank order the initiatives based on biggest bang for the buck. Finally, share the findings across the company’s functions and consult with leadership to begin executing against the most promising initiatives.
To successfully implement the cost optimization framework in software development, focus on improving transparency, ensuring flexibility, creating accountability, reducing waste, and rationalizing your toolset.
TurnKey Staffing provides information for general guidance only and does not offer legal, tax, or accounting advice. We encourage you to consult with professional advisors before making any decision or taking any action that may affect your business or legal rights.
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