How to Sustainably Improve Profit Margin at Your Software Development Agency
Improving your margin is an exercise in balancing costs against the tactics you are using to generate revenue while continually working to make your team more efficient.
It's a crowded market out there for freelance web developers, and especially now, it feels like it's only getting more crowded.
There are an estimated 1.5 million solo practitioner web developers around the globe, many of whom picked up the trade during the pandemic. Now, as rising interest rates make businesses reluctant to invest in things like websites, landing new web development clients can feel like fishing in a constantly shrinking pond.
If this sounds familiar, you're not alone, but it might be time to adjust your approach to account for the changing market conditions. We'll outline a strategy below that can open the door to more prospective clients.
Before we get into the strategy, let's take a moment to elaborate on what we mean by "Blue Ocean" in the title of this post.
In their 2004 book "Blue Ocean Strategy," authors W. Chan Kim and Renée Mauborgne introduce the idea of red oceans and blue oceans. Oversimplifying a bit, red oceans are markets with existing demand. As more providers enter a red ocean, the competition escalates to the point that for many, it's no longer worth it to compete. Think of a shark-infested ocean turning red with blood.
Conversely, a blue ocean is an unexplored market territory, devoid of competition. Here, the focus is on innovation to open up new possibilities and create new demand, offering unique value propositions.
At this very moment, there are thousands of (good) projects that no one is competing for. And those clients are just waiting for a developer or an agency to show up and start working with them.
But if those projects are good and potential clients are ready to pay, why is no one bidding to work on them?
The reason is that very few agencies and freelance developers work with the technology that makes it possible to bid on them. The unit economics don't add up for React and WordPress developers to bid on work with these clients. It requires something else entirely.
However, don't let the simplicity fool you. Without this crucial technology, all these projects mentioned before would be impossible to build.
Because this technology managed to close the gap between the demand and supply in the market. To explain this gap, let's use an example.
Suppose you wanted to buy a Ferrari but only had sufficient funds to cover 10% of the asking price. Would you be able to close that deal? Probably not.
Those development clients with solid projects are in a similar situation. Their budget might only cover 30-70% of the required costs if the project were built using traditional programming.
And that's the market gap. Clients would like to build these projects but are not financially viable. That is, they weren't financially viable until now.
This technology, which can be learned within 1-2 days, can increase development efficiency by 3X.
In simple terms, developers and agencies can do 3 times more in the same amount of time and with the same effort, making them 3X more efficient.
This means a project can now be built for a third of the cost. Now, all of these projects that lacked part of the budget are financially viable.
And any developer or agency that is using this game-changing technology now has access to all these projects (and basically zero competition).
All other things being equal, it all boils down to price. We already established that you win on that front by using low-code technology.
However, all things do not have to be equal. They can be better than what your competitors have to offer.
This helps you win not just on the price but additional factors as well, making your offer irresistible.
What are those additional factors?
With 3X higher productivity comes a 3X smaller team with the same output. Communication between the members is easier, and much less management is needed.
This makes things simpler both for the agency and the client. The result is less coordination, fewer headaches, and more agility.
Web apps built using low-code technology can automatically scale from one to a million users (and beyond).
No additional work is required to make them scalable, and the client only pays for the computing resources when (and if) they are used.
Usually, even if the client is "done" with the app and no further development is planned, someone must take care of the architecture.
Especially if the app is growing its user base and consuming more and more resources. In short, apps need a DevOps team on standby to maintain them.
However, this is not the case with low code. No DevOps team is required when you're using low-code technology. Because the entire architecture management is automated.
Increased development speed leads to a faster feedback loop between the users and developers. Essentially, a faster innovation cycle.
In general, low code shortens the time to market, which is extremely important. Because one of the most important things in business is to be first.
So if multiple clients have the same product idea and start simultaneously, the client that uses low-code technology will reach the market sooner.
The sooner the product is out, the sooner it gets users, revenue, feedback, and so on. Essentially beating the other project that only uses traditional programming instead of low code.
Low-code technology is opening the floodgates of new software projects because it's lowering the barrier to entry.
This means more ideas will reach the market than ever before, and it will be easier and more affordable to launch a project.
Even though low code offers a stunning 3X productivity increase, the demand for software developers will soar.
This decade will be the decade of low-code technology. With its impressive year-over-year growth, it will dominate the technology space by 2030.
There is an untapped blue ocean of good-quality projects waiting to see the light of day with the use of low-code technology.
Previously not financially viable, low code is raising project margins with its unmatched 3X productivity increase.
This makes projects (that are underfunded from a traditional programming perspective) highly attractive and profitable when built using low code.
And since low code is still in the early stages of mass adoption, there is virtually no competition for these projects.