Are there hidden costs in business software?
Before you reach for a calculator, it’s a trick question. Even technology industry analyst and seasoned business executives have difficulty putting a hard figure on the Total Cost of Ownership (TCO) of today’s traditional SMB application solutions.
In computing the cost of software, businesses tend to focus on the purchase price. Yet even when fully operational, software is never free. It must be supported, maintained and upgraded.
Software’s “Hidden” Costs
Beyond the purchase price, the “hidden” costs are: implementation, training, support, maintenance and all subsequent upgrades. Also included should be the cost of ‘downtime’ while the business tries to figure out how to fix the software should it fail. Together, the hidden costs of software can easily exceed the original purchase price by a factor of 100-200%!
How do SMB software cost break down? The U.S. Department of Commerce study shows that software purchase expenditures account for only approximately 30 percent of the total. The biggest hidden costs is represented by labor expenditures ranging from 37 percent for support and 33 percent related to software getting the software up and running. The numbers translate to a ratio of 1:2, software license to management/labor costs; and 1:1 license fee to implementation.