Building a Budget to Build Your Digital Product
By Adam Witter
It’s that time of year again; days are getting a little shorter, the nights are a little cooler, and your boss has been barricaded in his or her office for a full week. Sure, you officially started 2017 planning in June like you’re supposed to, but that was two offsite planning sessions ago when everyone was starry-eyed with optimism and aflutter with buzzwords. Now all those digital initiatives, strategies and tactics have come down to cold hard math. Let’s make a budget!
Ok, so for most people budgeting isn’t something people look forward to. Especially when your plans include a custom digital product of some kind. In this reference, when I say “product” I don’t only mean something your organization is selling to a customer, though obviously that would apply. In general, I’m referring to a digital property that is an integral piece of your company's business model or process infrastructure now and in the future. The “product” reference applies to the product lifecycle that this application is likely to go through, but more about that another time. Budgeting for a new custom digital product or a large rebuild can seem difficult, but with a little forward thinking you can get to what you need to close the gap.
Think of it as hiring a digital product
One of the better ways to look at budgeting for a digital product is to think about planning to add a new high-powered team member. You would never hire someone, pay them their salary for the first year and expect them to continue to perform on just health benefits and the coffee in the break room. In that same way, think of budgeting for your product as budgeting for head count. Don’t expect your digital growth engine to deliver year-after-year without proper compensation incentives, and don’t think your business operations workhorse will carry the burden of your organization on just a cost of living increase. So how should we look at it? Simple things like broadening your planning across three to five years instead of just a six or 12-month budget cycle and matching your budget allocations with your future growth plans can make all the difference in an adequately funded product.
Home remodeling vs. paying the electric bill
Remember that you’ll want to budget for two tracks: product expansions and product upkeep. Think of your digital product like a home. You may be able to put off that extra bedroom for now and hold off expanding your family, but not paying the electrical bill will eventually make living in your house very difficult. They’re different and very important. You need to plan for both. Don’t use the electric bill funds to paint your dining room because you won’t be able to see it in the dark later anyway. And don’t expect to entertain friends if you only own two folding chairs. For product upkeep, be sure to include hosting costs, third-party services, ongoing support, health checks, security updates and server monitoring. For product expansion, think user feedback, market opportunities, product roadmaps, strategic growth and data processing/analysis. Also, keep in mind that these may likely break down into separate allocations within your organization, so be sure you understand your specific company’s policies.
Plan to teach your application to feed itself
...or at least stock the fridge every now and again.
This one is important because ultimately all applications need to end up “paying” for themselves. Now obviously not all digital projects are directly responsible for – or tied to – revenue generation within an organization. However, all digital products have an underlying value proposition that will be used to determine its ROI as it matures. Have a plan and budget for the time period as well as multiple releases it may take to achieve that transition. Allocating the correct budgets along with planning releases around cash-flow cycles allows for greater flexibility. This flexibility helps to avoid costly delays and, more importantly, allows your company to take advantage of market opportunities that may only be available for a short window in time. So build in budgets or budget release schedules that incorporate room for feedback and release cycles of the application. For example, with a new product there is often optimization post launch to allow a product’s user base to expand. If the transition is abrupt, small issues or alteration that could be made cannot be implemented and the overall adoption rate of an application can be stunted or jeopardized entirely.
Graph 1: Initial product budget and product ROI uptake intersecting after your first and second product release. The 3rd product release happens once the two lines intersect.
It’s important to build in budgets or budget release schedules that incorporate room for feedback and release cycles of the application. This flexibility will help to avoid costly delays and allow you to take advantage of time sensitive market opportunities.
Graph 2: Initial product budget and product ROI uptake intersecting within the 1st product release.
With a little bit of forethought, consideration of maintainable product processes and direction from long-term goals, you’ll be able to create a budget that allows your product to thrive rather than just survive. So when your boss does finally emerge, you have the “math” to support your company’s next transformational digital project.