How Much Should You Spend on Buying New Software?

By: Sheldon Needle
Submitted: 2007-01-17 16:10:05
Print this article | Tell a friend | For publisher |

Rating:

 

The short answer to this question is simply spend only as much as you need to or get the solution with the best ROI (Return on investment).

Of course there are many considerations to buying new software including all of the following:

• Needs and priorities
• Growth rate
• Company’s ability to support the product
• Available features and functions
• Vendor support

Implicit in any software purchase is that you must answer the fundamental question – what will this software do for me and my business? In order words how do I justify my investment?

Suppose you look at 2 different products for your construction or manufacturing business? One offers only the essential needs while the second choice is much more exciting and seems to do so much more. It is visually exciting and has many more features. It could very well be that option 1 will offer the best return on investment for your situation even though it doesn't have nearly the eye appeal. There are many reasons this can be the case:

• It's easier to install train and maintain.
• It's easier to do custom reports.
• You will utilize more of its capabilities.

Yes, you may give up some glitzy features but these often are not even used. In fact, you should penalize software that has a lot of features you don’ t need because they will just get in your way with cluttered screens full of fields and functions you don’t need. It's a little like a work desk cluttered with paper. You don't have to let it get in your way but it is, nevertheless, visually distracting.

On the other hand, buying something really simple with only basic essentials can be short sighted when you are growing quickly and cannot predict future requirements or when critically important capabilities are not available.

Where buyers Usually Go Wrong

I speak to prospective software buyers every day who often tell me they have very limited budgets and cannot afford more than, say, $500 or $1,000 for new software. Perhaps they are small companies or startups.

Let's say they are manufacturers. For $3,000 or less you cannot buy a true manufacturing package. You are just not going to get good scheduling, MRP, work in process tracking, workflow, strong financials and cost accounting and good vendor support. You may not be able to drop all those special purpose spreadsheets and may still have to make duplicate data entries.

What is that worth to your productivity and ability to manage your business? Yes, you will save a couple of thousand on your software purchase but you probably won’t even be very satisfied with the software and, as you grow, will eventually have to trade up to something better to get better information and to add needed application. I talk to users like this almost every day.

If you are running even a $1M per year business your time, and staff time, is probably worth at least $50- 100 per hr. If that additional $3,000 investment saves you just 40 hours per year between you and your staff, it has paid for itself the very first year! And that's a pretty modest projection of how much time a solid industry package can improve your productivity.

You will have more information upon which to base decisions, less dependency on spreadsheets, better quoting integration, better ability to manage shop orders, less duplicate data entry and have more options when you need new applications.

Another sometimes neglected issue is that the low cost packages will often max out at 5 users.

- 10 users or more become unstable when transaction volumes or records exceed a certain size. All of these factors can be a daily drag on production and efficiency.

In short before you make any categorical decisions about what you should spend, consider all of the following:

• what items are critical to your operation,
• what your and your staff time is worth,
• expected growth

In short, think about incremental costs, not full costs and think about TCO, Total Cost of Ownership over the long run. The inexpensive solutions will cost less upfront but the steady drip, drip, drip of an inefficient, poorly supported system costs you day in and day out.

In the long run that cheap solution may not be so cheap after all.

Article source: Expert Articles