Software ImplementationStrategy & Operations

Be an Informed Buyer: Understanding the True Cost of Business Software

Brian Westfall profile picture
James La Forte Headshot
By Brian Westfall

and James La Forte - Guest Contributor
Published | Updated on
10 min read
Header image for the blog article "Be an Informed Buyer: Understanding the True Cost of Business Software"

It's not just you—budgeting for business software is complicated. We're here to break it down.

Note: This article is intended to inform our readers about business-related concerns in the United States. It is in no way intended to provide financial advice or to endorse a specific course of action. For advice on your specific situation, consult your accountant or financial consultant.

In an ideal world, buying software would be as straightforward as buying almost everything else. There's a set price; you pay it, and that's it—you own the software!

If you've started researching different software options for your business, you already know it's not that simple. Not only do software vendors employ drastically different pricing models, but they also bury additional costs inherent in owning and operating their systems.

According to Capterra's 2024 Tech Trends Survey on business software buying, the most common reason for regret among businesses was that the total investment for the software product was more expensive than they were initially led to believe (35% of respondents).*

This total investment beyond just the software licensing included costs such as training, implementation, maintenance, and other ongoing expenses related to software.

To achieve ROI targets, it's imperative that businesses understand the full cost of ownership when considering new software purchases.

(To keep from going over budget, check out our total cost of ownership calculator here.)

We'll break down the five major components that make up the total cost of owning business software. The goal? To clarify software costs so you can feel confident in your software purchase decision.

Cost component #1: The software license itself

The software license—the cost to actually own and use the software—has the dual honor of being a significant chunk of the software price and a hard cost to pin down definitively because of how drastically it can vary over time as you scale your business.

There are two major software license pricing models you'll run into: perpetual pricing and subscription pricing.

With perpetual pricing, you pay one price upfront to own the software indefinitely (i.e., in perpetuity, hence the name). This pricing model has been around the longest and is typically used for software that is deployed "on-premise," which means it's downloaded and stored on a local computer or server at your business.

H&R Block is an example of perpetual pricing. You can purchase their small business tax preparation software for a one-time fee of $89.95.

With subscription pricing, you pay a monthly or annual subscription fee to use the software. If you stop paying or don't renew your contract, you lose the ability to use the software. This pricing model is more recent, more popular, and often used for software deployed through the cloud (this deployment model is also called "Software-as-a-Service" or "SaaS"). That means it's hosted on the software vendor's own servers and accessed by customers through the internet.

Keep in mind:

Software vendors often offer the option to do either a monthly or annual subscription, with the annual option being cheaper overall to entice you into a longer contract. That lower cost is not a given, though. Do the math to see which payment schedule is cheaper for your situation.

Basecamp is an example of flat subscription pricing. They offer an unlimited tier for $299 per month, which provides access to all software features for an unlimited number of users.

There are three other types of subscription pricing you can run into as well, with fees that vary based on different factors: consumption, size, and user-based pricing.

  1. Consumption-based pricing ties your subscription fee to how much you actually use the software or its associated services. Cheddar, a billing platform, offers an option for consumption-based pricing, charging $99/month plus $.30 per transaction made via the platform.

  2. Size-based pricing ties your subscription fee to the size of your organization, such as how many employees or customers you have. WebHR, a software platform for HR departments, uses size-based pricing. For a company with 150 employees, WebHR charges $2 per employee per month. Additional features can be added for between $0.25 and $2 per employee as needed.

  3. User-based pricing ties your subscription fee to how many people you have using the software. Onshape, an engineering design software tool, uses user-based pricing; their "Professional" plan costs $2,500 per user per year.

Keep in mind:

It’s important to understand the difference between named user pricing and concurrent user pricing. With named user pricing, each user has their own login, and all users can use the software simultaneously. With concurrent user pricing, you get a fixed number of logins that anyone can use, but only that fixed number can be logged in at the same time.

If you have a team of 20 people who will need to use the software all at once, you should go with named user pricing for 20 users. If, however, only five of your 20 need to use the software at once, it may be cheaper to select concurrent user pricing for five users.

In most cases, your hands will be tied to the software pricing model you choose. Software vendors will rarely offer both perpetual and subscription options for their products.

Still, where you do have the choice, or if you're comparing a perpetual product to a subscription product, weigh the pros and cons of each to determine which model is best for your business.

Graphic comparing Perpetual vs. Subscription Pricing

Cost component #2: Hardware

As obvious as it might be, it's still important to account for the cost of hardware to run the software you purchase. This is especially important for on-premise deployments, which could not only require purchasing a server to host the software but also new devices that use the right operating system. In other words: if you use Macs but the software you want is Windows-only, that's a significant cost to account for.

Because they are accessible through a web browser, SaaS deployments offer a lot more hardware flexibility. Computers, tablets, or smartphones will work. Companies can also save money on hardware by allowing employees to bring their own devices from home (though this should be paired with a comprehensive bring-your-own-device (BYOD) policy to reduce IT vulnerabilities).

Certain categories of software will require additional hardware purchases as well. Biometric attendance systems, for example, use a person's fingerprint or other unique identifier to ensure someone is who they claim to be. These platforms require specialized hardware in order to register biometrics accurately.

Graphic showing uAttend sells time clocks compatible with their software on their website.

uAttend sells time clocks compatible with their software on their website (Source)

Some vendors may require you to use their associated hardware with their software, or you may have the freedom to shop around.

Cost component #3: Implementation

Vendors can charge a one-time fee at your time of purchase to implement the software and get it up and running at your business. Besides basic installation and setup, implementation costs can also cover needs such as:

  • Customizing the software

  • Data migration from previous systems

  • Integration with current systems

If you can handle implementing the software yourself, vendors may waive this cost. For example, Odoo, an enterprise resource planning (ERP) platform, offers a free self-service implementation option alongside paid options if you need assistance.

Odoo’s implementation options

Odoo’s implementation options[1]

A general rule of thumb is that on-premise systems cost more to implement than cloud-based ones. More complex systems cost more to implement than basic apps, too.

In some cases, you could spend as much (if not more) on implementation than the actual software license. Ask vendors about the details of their implementation options and fees to budget accordingly.

Cost component #4: Training

Though a software license cost typically includes access to help guides and support forums, vendors may also charge a separate, optional fee for additional training. Depending on the complexity of your chosen software and how critical it is to your business, this training could be a worthwhile investment so your employees can quickly familiarize themselves with the platform.

Training can be delivered in a variety of formats, which range in cost:

  • Sending employees to a vendor training site

  • Bringing a trainer to your company

  • Virtual webinar sessions

  • Self-paced e-learning courses

High-profile software vendors may also offer certifications that users can earn to show they’re familiar with the platform. Salesforce, for example, offers a variety of certifications that cost anywhere from $200 to $6,000.

A list of Salesforce administrator certifications

A list of Salesforce administrator certifications[2]

Whatever training option you prefer, be sure to budget not only for initial users but also for new hires who will have to learn the system down the road.

Cost component #5: Support

Sometimes rolled into the cost of the license, ongoing support can also be a separate charge that covers maintenance, upgrades, and even premium forms of customer service.

For example, Adobe customers have the option to opt into the Adobe Platinum Maintenance and Support Program, which offers prioritized 24/7 customer support for an annual fee of around 20% of the license cost.

Support may also include options for consulting, which pairs you with an account rep to meet with regularly to go over goals and how to get the most value out of the software. HubSpot, a marketing system, offers four different consulting options ranging from $400 to $1,600 per month.

HubSpot’s consulting options

HubSpot’s consulting options[3]

Depending on the support services they offer, your vendor may be able to take on some significant administrative burdens that you can't handle (e.g., some payroll software vendors can handle your company's payroll needs for you).

Weigh the cost of completing these tasks internally against outsourcing them to a software vendor.

Final tips for saving on software

Software pricing is never as simple as it appears on a vendor's website. Hidden costs are rampant, and unless you account for them, you'll find yourself blowing past your software budget.

Understanding all of the elements that go into the true cost of business software will help you prepare and keep costs in check.

Budgeting for software? Check out our total cost of ownership calculator

Browse here

Note: The software vendors mentioned in this article have been selected solely to illustrate various software pricing models and are not intended as endorsements or recommendations. These pricing strategies are not unique to these companies and are offered by numerous other software vendors.

There's no doubt that the right software choices and implementation can lead to cost savings, even with an aggressive ROI schedule. But to achieve this, you should keep a few things in mind while choosing which software is best.

In Capterra's 2024 Tech Trends Survey on software buying trends, businesses ranked what they would do differently to avoid many of the regrets when choosing software.* Below are the two common mistakes and how you can fix them.

Ensure alignment among the stakeholder group about the evaluation/selection criteria

The top change businesses would make when making a software investment was properly clarifying the goals for the software (37% of respondents).*

Software companies can often make lofty claims about how their product will improve your business. However, every business should clearly outline what exactly they need the software to do in as much detail as possible. This makes the selection process much more accurate and will result in fewer issues with software solutions that are not meeting expectations after deployment.

For example, try to avoid general goals such as "reduce HR costs" and instead use specific goals, such as improving the time to acquire a new hire by 25%. This allows the business to seek out specific features to help them reach their intended goals.

Secure a budget early in the process

34% of respondents felt that securing a budget earlier would have helped them keep the costs closer to their initial projections.*

The total cost of ownership for software was the most reported cause of purchase regret among businesses surveyed. A good way to avoid this is by having a set budget before starting your search.

This budget should be based on your ROI timetable as well as specific cost savings that the software will produce.

Following these guidelines should help you meet your ROI requirements and avoid being surprised by any extra costs as you continue to deploy the software of your choice.

Next steps

Understanding the true cost of software comes down to proper research before the purchase. Being aware of the entire deployment and implementation process is crucial when budgeting for all costs involved with a software product.

Below are some additional resources to help you research your next software product to ensure it lives up to expectations and stays within your budget.


Methodology 

*Capterra’s 2024 Tech Trends Survey was designed to understand the timeline, organizational challenges, adoption & budget, vendor research behaviors, ROI expectations, satisfaction levels for software buyers, and how they relate to purchase regret.

The survey was conducted online in July 2023 among 3,484 respondents from the U.S., U.K., Canada, Australia, France, India, Germany, Brazil, and Japan, with businesses across multiple industries and company sizes (5 or more employees). Respondents were screened to ensure their involvement in software purchasing decisions.

This report displays the results based on 700 respondents in the U.S.

Note: The software vendors mentioned in this article have been selected solely to illustrate various software pricing models and are not intended as endorsements or recommendations. These pricing strategies are not unique to these companies and are offered by numerous other software vendors.


Was this article helpful?


About the Authors

Brian Westfall profile picture

Brian Westfall is an associate principal analyst at Capterra, covering human resources, with a focus on recruiting, talent management, and employee engagement. Over the past decade, Brian’s research on the intersection of talent and technology has been featured in Bloomberg, Fortune, SHRM, TIME, and The Wall Street Journal. He also led a session - “Become Data-Driven Or Drown: Why Winners and Losers of The Next Recession Will Be Decided By Tech” - at the SHRM Talent Conference & Expo in 2023.

When he isn’t helping small and midsize businesses get the most out of their HR technology, Brian can be found playing with his two corgis or traveling the world.

James La Forte Headshot

James La Forte is an IT professional and freelance writer who specializes in business, investing, and technology. His work has been featured in publications such as Tech Republic and U.S. News & World Report.

visitor tracking pixel