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.
To increase the profitability of a software development agency, we need to focus on the main cost attributor - development. Trying to reduce other costs can yield some results, but none of them will be as impactful as reducing the highest cost.
Unfortunately, the methods you may find on the internet (so far) can't do anything significant when it comes to development costs.
All agencies have access to the same developers. They may find people willing to work for a lower salary, but those people are likely not as experienced, and their productivity is also lower.
In short, you get what you pay for.
Working with new experimental technology is something that actually works (but only in theory).
Yes, this new language or framework might be much faster and less prone to bugs. Developers might actually be more productive with it. Your entire project might be done way ahead of schedule.
But… all of this doesn't matter at all.
Because if this language or framework:
All of these reasons make this fancy new technology (which actually might work) too risky to try.
Because no (good) agency is willing to risk its entire reputation for a few extra profit margin percentages. And so they prefer to stick with old, tried and tested technology.
It is obvious that any significant profitability breakthrough will have to come from better tools and better technology.
However, due to the risks involved, agencies will stay away from new tech until it's proven safe by many other projects.
But by that time, everyone else is also using this new technology. This means the advantages of using it are gone.
So how can an agency bridge the gap between opportunity and risk? How do you get ahead of the trend and reap the biggest benefits without introducing risks for the agency's reputation or its clients?
Well, there is one technology today that might provide just that.
Low code technology is a complete game changer that will define this decade and irrevocably change the way applications are built (both frontend and backend).
There are many benefits agencies can enjoy today when using this technology. One of them being a 3X productivity increase.
But what about the risks?
Low code doesn't have the risks usually associated with new technologies. This is because low code is not a "new" technology - it is an extension of existing widely-used technologies.
Low code technology can be easily grasped, and developers can get a 3X increase in productivity within only 1-2 days of learning.
This makes it a very low-risk technology from a time investment perspective.
Individual developers and agencies can invest very little energy and quickly determine if the low code can deliver on its promise.
And this is the great power of low code. Even if you introduce it to developers who've never heard of it, they can use it proficiently within 2 days.
This means you will never have any problems scaling your team and business.
Since low code is not a new technology, just an extension of existing tech - there is almost no risk. And all the technology that low code extends already exists for years or decades.
Almost every developer had to come across these technologies at least once in their life. And they are part of the codebase that powers the biggest and most important infrastructures in the world.
In short - it's safe.
Agencies can seize many profit opportunities when using low code technology. They have plenty of advantages when their teams produce 3X output. You can only imagine profits achieved through that one benefit.
However, this is not the only low code benefit.
Projects built using low code technology don't require architecture management. This means no need to build out or maintain a DevOps team.
Every frontend and backend app built with low code is automatically scalable. And no additional work is required to make your app scale from one to a million users (and beyond).
This is yet another example of how agencies can achieve more with a smaller team.
Having smaller teams also makes the management of resources much easier. Plus, compact teams have much better communication.
Add this to efficiency and reduction of various direct and indirect costs. Not to mention, agencies can scale much faster while hiring fewer people.
The problem is not just in hiring and increasing costs but in difficulty in finding good people. Even if you have the budget - and willing clients - the hiring process is long and at times challenging.
Then you have to hire additional operations staff (HR) to process these applicants, adding another layer of costs to the agency business model.
All of this (and more) is resolved through the use of low code technology.
The only way to significantly increase profitability for a software development company is to reduce development costs.
This can be achieved through the use of new and better technology. Unfortunately, since it's new, this technology could pose a significant risk when used on important projects.
Low code technology has a unique position where it's actually an extension of the most widespread and commonly used technology. But simultaneously offers a 3X increase in productivity after only 1-2 days of onboarding.
This inevitably results in a dramatic reduction of development costs and impressive profits for both the agency and its clients.