Small and midsize businesses (SMBs) have a lot of tough decisions to make when it comes to the technologies they choose to invest in now, the ones they put a pin in for later, and the ones they forego entirely, as we discuss in “HR Technology Strategy: What Small Business Leaders Need to Know for 2019.”
But the tough decisions don’t end once you decide to invest in HR software. On the contrary, they’ve only just begun.
Take budget, for example. According to Capterra’s 2018 Top Technology Trends survey, 36% of SMB leaders in the United States say funding is one of the top challenges their organization faces when planning investments in new technology.
For SMBs, especially the 43% that aren’t currently using HR software, knowing exactly how much money needs to be set aside for new software is critical. With little to no knowledge of the market, and some deceptive pricing practices from vendors, SMBs tend to budget much less than what’s needed to invest in a proper solution.
How much should you budget for new HR software in 2019? That’s what we’re here to find out.
As part of our Top Tech Trends survey, we not only learned how many SMBs are budgeting for HR software, but the actual amount that they’re planning to spend. Using this information, you can get a better estimate for how much you should budget for your own HR system in 2019.
Let’s dive in.
Nearly half of all SMBs are budgeting for HR software to address workforce concerns
Data highlight: 42% of SMBs are budgeting for HR software, which is more than that for either project management (39%) or CRM (37%) software.
Analysis: At a time when there are more job openings than qualified people to fill them and current employees have become increasingly burned out and disengaged, HR leaders need all the help they can get just to maintain a productive workforce at their SMB.
Therefore it comes as no surprise that more and more SMBs are setting aside precious funds for HR software systems to help with everything from tracking employee hours to automating payroll runs and improving the experience for job applicants.
Of the total 715 SMB leaders we surveyed, nearly half (42%) are budgeting for some type of HR software over the next one to two years.
To put that number in perspective, that’s only slightly behind the number of respondents budgeting for digital marketing software (43%) and slightly ahead of the number budgeting for important systems such as project management (39%) and CRM software (37%).
Our recommendation: If you’re here, that hopefully means you’re already planning to budget for HR software. If you’re not planning on it, you may want to reconsider.
Tired of competing in the saturated enterprise space, many HR software vendors have shifted their focus in the last five years to the growth potential of SMBs. This shift has given SMBs more affordable HR software options that are more intuitive than ever for a user base that isn’t always made up of dedicated HR personnel.
These platforms can automate tedious administrative tasks and give workers the capabilities to solve their own problems. They also provide much-needed clarity and insight into the mountains of employee data that SMBs are accumulating but don’t know what to do with.
When 91% of SMB leaders say HR software is critical or beneficial to their business, it’s highly likely it will be to yours as well. Identify your biggest HR needs and analyze your company budget to see if there’s any wiggle room to purchase and implement this tech.
SMBs, regardless of size, expect to spend the same amount on HR software annually
Data highlight: 43% of SMBs that are budgeting for HR software plan to spend between $1,000 and $10,000 annually. The median spend for all respondents is $5,000.
Analysis: In an ideal world, purchasing HR software would be as easy as purchasing a movie ticket or a hot dog. There’s a one-time cost, you pay it, and you get on with your life.
Sadly, that’s not the reality. Depending on the vendor and implementation type, you could pay a monthly or annual subscription fee as opposed to one large, upfront sum. SMBs also have to consider ancillary costs for things such as customization, training, and maintenance.
Vendors rarely make all of this pricing publicly available, which is why it can be incredibly difficult to budget for these costs ahead of time—especially if you’ve never purchased this software before.
To help, we asked the 276 SMB leaders in our survey that have funding budgeted for HR software how much they plan to spend. Forty-three percent said they will spend between $1,000 and $10,000 annually, while 28% said they will spend between $11,000 and $50,000.
Overall, this means that SMBs, on average, expect to spend $25,000 a year on HR software. If you mitigate the effect of outlier responses by focusing on the median, it comes out to $5,000 a year.
Even when the results are broken down by business size, this median remains consistent. Whether a respondent has five employees or 150, the median spend is still $5,000 a year.
Our recommendation: When your options range from a free or open source HR system all the way up to a sprawling on-premise suite that costs six figures, budgets are going to vary wildly from business to business.
In general though, $5,000 a year is a good ballpark figure to start with. With 50 employees, that amounts to around $8 per employee, per month, which aligns with the figures in our HR software pricing guide.
Now that you have a ballpark figure, it’s time to tweak it to your unique situation. Is your implementation complicated enough to require IT staff or other personnel? You need to factor that into your budget. You also have to factor the cost of cleaning and migrating your existing data.
While it can be tempting to low-ball your budget so it has a better chance of getting approved by leadership, in the end you should aim for what’s realistic rather than what’s ideal. The last thing you want is to run out of budget at the finish line on something like user training that’s crucial to netting a positive ROI.
Manufacturers are budgeting more for HR software than other industries
Data highlight: The 37% of SMBs in manufacturing or natural resources that have funds budgeted for HR software plan to spend between $11,000 and $50,000 annually. The median spend for these respondents is $31,000.
Analysis: Across industries, HR software budget numbers largely look the same. However, there are two industries where we see increased spending on HR software compared to the rest: manufacturing and natural resources.
More than a third (37%) of SMBs in these industries that have funds budgeted for HR software plan to spend between $11,000 and $50,000 annually. The average spend for these industries is $33,000, and the median spend is $31,000.
There are a number of factors influencing this trend.
For one, manufacturers are one of the largest purchasers of enterprise resource planning (ERP) software: comprehensive software suites that include HR functionality alongside other modules for needs such as supply chain management, business intelligence, and accounting. Though the cost is higher, ERP software users enjoy the benefits of tighter integration across business functions and being able to work with one, unified database.
There’s also the state of manufacturing itself: an industry that is hiring like crazy in a post-recession economy, but struggles with overcoming worker skills gaps and the worst employee engagement metrics in the nation.
With new tariffs threatening mass layoffs, and the prospect of another global financial collapse on the horizon, manufacturers are eager to strike while the iron is hot; getting their talent management technology stack up and running in order to gain efficiencies and cut long-term costs.
Our recommendation: If you haven’t considered ERP software for your manufacturing or natural resources business, you may want to look into it. Your business can benefit immensely from having all of your various business functions in one system, and there are numerous ERP options out there that are affordable for small businesses.
If you’re sticking with a pure HR solution, weigh your feature “needs” vs. your feature “wants” carefully. You don’t want to overspend on a solution where you only use half of the functionality, but you also need software that can scale with you for the immediate future. The last thing you want is to have to start over because you outgrew your purchase in a year.
Don’t worry, you’re not budgeting alone
Over time, software has become more and more critical to small business survival. Businesses can realize immense benefits from this transition, but they can also run into frustrating hardship as SMB owners and HR personnel feel like they have to become tech experts overnight.
If I can end with one piece of advice, it’s this: Don’t ignore what other businesses have done before you. As we’ve shown, if you have no clue how much you need to budget for HR software, other SMBs that have already budgeted for this tech provide a good starting point.
The same goes when researching different products. If you head to our HR software directory page, you can read reviews from real users at businesses like your own to determine which products should make your shortlist, and which ones you should avoid entirely.
We’ve done some of the work for you, as well. Check out our HR software pricing guide to learn how much you should expect to spend on popular options.
Information on Capterra’s Top Technology Trends for SMBs survey
Capterra conducted this survey in June and July 2018 among 715 U.S.-based SMBs with more than one employee and annual revenue of less than $100 million. The survey excluded nonprofit organizations. The qualified respondents are decision-makers or have significant influence on the decisions related to purchasing technologies for their organization.