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Updated Nov 13, 2023

What Is Custom Software Development?

When a business has specific software needs that off-the-shelf software can't address, it commissions developers to create custom applications.

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Written By: Jennifer DublinoBusiness Strategy Insider and Senior Writer
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This guide was reviewed by a Business News Daily editor to ensure it provides comprehensive and accurate information to aid your buying decision.

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When organizations need applications with unique features and functionality, they turn to software developers to design and create custom solutions. Custom software addresses users’ specific needs more comprehensively than traditional off-the-shelf packages. 

While the idea of software tailored to your business sounds appealing, custom software development isn’t for everyone. The process can be expensive and time-consuming, and it’s challenging to convey the scope of the functionality you need.

We’ll look at custom software vs. off-the-shelf solutions and help you determine if custom software development is something your business should pursue. 

Custom software vs. off-the-shelf software

Packaged software applications are available for nearly every computing, business, productivity and communications task imaginable. 

These packages generally offer the following features. 

  • Ease of use: Off-the-shelf applications serve large audiences with fundamentally similar needs. For example, Microsoft Word is an enormously popular word processing application with features, functionality and customization options that organizations of all sizes and scopes can use. 
  • Easy access for purchasing or downloading: Off-the-shelf software can be prepackaged and purchased in a store, but it’s often downloadable from manufacturers’ websites or available as a cloud subscription.
  • Wide availability: You can find an off-the-shelf software package for any platform your business uses, including Windows PCs, Macs and Linuxes. 
  • Customizability: Popular commercial packages, such as Microsoft Office applications, have a degree of customizability to make the software work better for your team. 

Despite the variety of off-the-shelf software available, some organizations require specific capabilities that general software can’t provide. If this is the case, they may turn to customized software development. Here’s what custom software has to offer: 

  • Uniquely tailored features and functions: When a developer creates a custom software product, that application is tailored specifically for the commissioning organization’s use. For example, if a developer created an application for JPMorgan Chase, only the bank or one of its specific departments would use the tool. A custom application could analyze the bank’s customer database and connect to market data and preset goals in customer accounts to create suggestions for JPMorgan’s investment advisors.
  • A solution only for your business: The developer would design the software to work with the commissioning company’s infrastructure, branding and implementation needs, and no other organization could access the application.
Did You Know?Did you know
In addition to commissioning custom software, some owners design mobile apps for their business to help customers shop and stay on top of company events.

Custom software development pros

Custom software’s most significant benefit is providing features that off-the-shelf software doesn’t. After the custom-designed solution is implemented, the problems it solves can be well worth the costs. 

For example, if you commission an application designed to increase productivity, the resulting rise in efficiency can offset the cost of building the solution. If your custom software addresses unique time and attendance or payroll challenges, you can save money and maximize your employees’ time. 

If your organization has a need that’s specific enough to warrant custom software, designing a solution is an excellent idea.

Custom software development cons

If implementing a custom software solution was inexpensive and easy, everyone would do it. Unfortunately, costs and risks make designing a custom software solution challenging. 

  • Costs: The cost of off-the-shelf software applications ranges from a few dollars to a few thousand dollars. Many standard business applications have relatively low monthly subscription costs or one-time fees. However, designing customized software requires significant financial resources. The commissioning business must cover all costs associated with the development process. Some custom solutions can reach five figures or more.
  • Risks: The risks associated with custom software vary according to your project’s scope, but it’s easy to lose sight of your end goals. It’s critical to have an in-depth understanding of your company’s requirements and communicate with your developer how you want the product to address those needs. During the development process, it’s not uncommon to discover additional features and functions your custom product should have. Modifications and revisions mean more costs and additional development time. Frequent changes can result in losing project scope and ending up with software that doesn’t adequately address your needs.

Does my company need custom software?

Commissioning a custom software application is expensive and time-consuming, so you shouldn’t undertake this project lightly. Look for these signs that a custom software application may be worthwhile.

1. Your employees are overwhelmed with inefficient processes and workarounds. 

Consider a custom software solution if your employees deal with overwhelming paperwork or perform multiple workarounds daily. These inefficiencies can interfere with productivity and impact morale. 

Here are some red flags that your current system isn’t working. 

  • Tedious processes: Excessive paperwork, red tape, and steps needed to accomplish daily tasks signal that you need improvements. Technology is supposed to make tedious processes and tasks more efficient, so something has to change if your current solutions aren’t helping.
  • Excessive workarounds: If you’re using legacy or off-the-shelf software, and your employees have to perform multiple workarounds to get their work done, something’s wrong. For example, do employees need to export data from one internal software application and import it somewhere else before they can work with the information? Do they go out of their way to make reports look presentable? If so, custom software may be a reasonable solution. 
Did You Know?Did you know
A frustrating work environment is a morale killer for employees. Providing an efficient, smoothly operating workplace is one way to keep employees happy without a raise.

2. You need an in-house Excel expert to make sense of your data.

Many small businesses spend excessive time and resources manipulating financial, customer and sales data in spreadsheets. A custom software solution can automatically interface with your data sources, such as point-of-sale systems, and create quick and informative reports and charts. 

This efficiency allows businesses to spend their time making decisions based on the data instead of massaging it into a usable format.

3. Your outside salespeople and offsite employees need secure access to data. 

A custom software package can give your sales team, or other on-the-road employees, access to proprietary information you wouldn’t feel comfortable putting on Slack or other cloud-based collaboration tools. Your software developer can create a unique, secure and encrypted collaboration platform. 

Displaying only the information remote employees need – and safeguarding the rest of your data – lets you enable collaboration and keep your company data safe from data breaches.

When you have a remote workforce, your telecommuting policy should address expectations, requirements, and the remote tools and communication methods allowed.

4. Your company has specific, proprietary processes.

If you’re in a nascent industry or have an innovative product, process or service, there may not be any off-the-shelf solutions for you. Or your organization may be introducing new ways of doing business. For example, Uber needed to create custom software for its drivers and customers; even though the business model existed already through taxis, the app-based ride-sharing process was new.

5. Your company is growing.

Developing a custom software application can maintain or improve customer retention and satisfaction levels, reduce errors, and boost sales as your company grows. Because the custom solution is something you created, you have the flexibility to expand it and add users, locations and functionality as needed.

Before creating custom software for your business, research existing software solutions to see if one meets your needs. For example, look at the best project management software, the best time and attendance software, and the best accounting software.

Custom software development services

Selecting a company to create a software application for your business can be a challenge. You’ll need to find acceptable candidates and hire a company or professional that promises the right price and service level. 

Typically, you’ll meet with prospective software development partners to ensure everyone’s on the same page about what’s needed and the total amount of work that’s required to create the custom solution. Next, your candidates will submit bids based on development time and costs. Bids aren’t set in stone; some projects will engender additional time and expenses. 

Try not to focus on the most attractive, lowest-priced bid. It’s critical to select the company that will best meet your needs. 

Here are some tips for selecting a custom software development provider: 

  • Get referrals from people in your network and industry. 
  • Look for developers that use lean, non-buggy code.
  • Check out their previous work, focusing on industries served and project size.
  • Focus on companies with a history of on-time delivery. 
  • Ensure there is good two-way communication.
  • Nail down who owns the intellectual property.
  • Ensure they’re creating an optimal user experience.
  • Bake in security measures.
  • Be clear about post-development support expectations.
Did You Know?Did you know
Proprietary software created for your company constitutes intellectual property that makes your business more valuable.

5 best practices for developing custom software

If you move ahead with custom software development, follow these best practices to ensure the process goes smoothly.

1. Define your current process and future needs.

To build anything, including software, it’s critical to define your current process, expectations and success criteria. 

Ensure you understand the following:

  • What is the current process? Don’t make assumptions; ask subject-matter experts who handle the work daily. This may include employees in different areas as well as outside experts or vendors. Get as much detail as possible.
  • What problem are you trying to solve? Don’t assume something new will be better. Test the theory, or at least get stakeholder feedback from all levels.
  • What does success look like? Sketch out desired workflows and other processes that the software is meant to support so that nothing is left out.

2. Choose the right people for the work.

The following people and organizations can develop custom software:

  • Your internal IT team, including your chief technology officer (CTO)
  • People you hire or contract specifically for the job
  • Software development vendors and companies

It’s tempting to say you’ll handle everything in-house to save money. But using your own IT team for this purpose has drawbacks. First, your team already has obligations; pulling them from daily work could cause slowdowns for the entire business. Second, your tech personnel may not be trained or experienced in software development.

Outsourcing this process often makes the most sense. You can work with teams that have successfully designed and implemented other custom software. You may even be able to find a company that specializes in products for your industry.

3. Make a realistic plan with set milestones.

Create a team that includes your developers, subject-matter experts and a project manager to lead and direct the overall initiative. Together, create a road map for the project. Ensure it’s realistic; you can’t create a complex workflow and shipping system in a week.

Plan for milestones to keep the project on track. These are various development stages that should be completed at specific time and budget intervals. Review the work at each milestone to understand if you need to change your planned timeline or budget.

Key TakeawayKey takeaway
Outline the milestones, testing period and support in the custom software development contract so there are no misunderstandings.

4. Conduct appropriate testing.

Before implementing the new software across your entire business, test it. Testing usually occurs on the technical level and the user level.

  • Technical testing: Developers and IT professionals conduct technical testing to ensure the software’s foundational elements are working.
  • User testing: Business beta users conduct user testing. User testing ensures the software works as expected and desired. It will also test the user experience and interface to ensure employees can operate at maximum efficiency without confusion or frustration.

5. Document the process.

Documentation is important for all stages of development and implementation. This should include the following:

  • A test plan and checklist to fully vet the software
  • A statement of scope to ensure you don’t end up trying to solve too many problems with the software
  • An implementation plan that defines who will use the software and when they should start
  • A training plan and detailed user documentation so that people aren’t left frustrated and with questions when you roll out the new resource

Ryan Goodrich contributed to the writing and research in this article.

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Written By: Jennifer DublinoBusiness Strategy Insider and Senior Writer
Jennifer Dublino is a small business owner and skilled strategic marketer who specializes in designing campaigns for sales conversion. For more than 30 years, she has helped businesses with market research and planning, budgeting for marketing initiatives, lead generation and more. Over the years, she's founded and sold her own marketing firm, served as COO of the Scent Marketing Institute and launched a second marketing company — which she still runs today. Dublino holds a bachelor's degree in business administration and an MBA in marketing and finance, both from the University of Miami. Her expertise, which extends to all facets of business operations, from POS systems to compensation management, has been quoted in AdAge, Adweek, Reuters and other outlets.
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