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AcctTwo Blog

Why Should You Spend Money on Software?

Don't Focus on the Software's Price-Tag, Focus on the ROI

An obvious question and subsequent discussion that comes up in this business is "How much does a software solution cost?" When a customer sees the price tag associated with any software purchase, there is an immediate, visceral, human reaction. The customer or company has most likely determined a specific budget for the new tool that's being considered, and even if that assessment hasn't been made with due diligence, there's some sort of ballpark number in most people's heads, or at least a limit, when they start to look at what's available. What often quickly gets lost is the return on investment of those solutions. 

Here is a simple way to calculate ROI:

Simple ROI = (Gain from Investment – Cost of Investment) / (Cost of Investment)

At a time when many businesses are trying to cut down on their IT costs, software purchases can seem to run counter to that initiative. In the case of cloud-based software, however, a shift from on-premise solutions to cloud-based solutions can actually cut IT costs, offsetting some or all of the purchase costs of the new product. There are some other key areas to consider with regards to ROI and purchasing new software.

  1. Better automation is a key benefit to consider, and specifically how it can enable the acceleration of business processes. If things can be accomplished more quickly, a business can very simply make more money in a shorter amount of time. Automation also reduces the need for human involvement at every step of the process, allowing businesses to reduce headcount or, maybe better yet, refocus their employees on more productive tasks - improving value, customer service, reach, etc.
  2. New software may also open up new sources of revenue, providing a business with the ability to provide products and services that it wasn't capable of before.
  3. Cost reduction can come not only from reducing headcount/refocusing human capital, but also from reducing and/or consolidating hardware. As we mentioned above, in the specific case of cloud-based software, these hardware cost reductions may seem obvious. A cloud-based shared services or SaaS solution will run far more efficiently than most in-house IT set-ups, and thus lower the total cost of ownership.
  4. Better collaboration is another key area of ROI - increasing product development speed, quality, and reducing redundancy.
  5. Software that makes compliance with laws, codes, and regulations easier and more effective is the final benefit we'll mention here, although there are certainly more. Protecting a business from replacing products, altering services or, worse yet, litigation is perhaps one of the more difficult sources of ROI to gauge.

ROI more important than CostSo when a business is ready to invest in new tools or solutions and the price-tag elicits a reaction like "that's just too much for us to afford" or "our organization isn't big enough to justify that cost", businesses should try to remain focused on the ROI. Our contention is that EVERY dollar spent on software should have a positive return on investment. So if, for example, you are looking at spending $10,000 on software and then you see an add-on module that can help automate additional manual efforts that costs another $8,000, it's natural to see the mounting price-tag and say "wow, we can't afford $18,000 of software". The initial $10,000 should already provide savings and/or increased revenue of $15-$20k or more. The additional $8,000 should get a return of $12k-$16k. So the real question should be "should we spend $10,000 to save $15k (a net ROI of $5k), or should we spend $18,000 to save $27k (a net ROI of $9k)". Clearly if one has the opportunity to save $9k instead of $5k the decision is not a difficult one.

With all the tools that are becoming more and more available to small and medium-sized companies (thanks in part to the cloud and also to the ease with which companies of all sizes can now access incredible tools that were previously only available to larger organizations), businesses should be looking all over the place for new tools that can save them money, make them more efficient and effective, while also allowing them to add strategic value to the business. So don't let sticker-shock blind you to what could be a very lucrative investment, and thus a very easy decision to make.

About AcctTwo

AcctTwo is a leading consulting firm and reseller of cloud-based accounting and financial management software. AcctTwo’s sophisticated systems solve the issues growing middle market companies face today. AcctTwo also outsources back office processes, allowing clients to focus on the core competencies of their business. AcctTwo provides the people, processes, technology and office facilities to perform these functions, while allowing clients to collaborate interactively through an on-line portal.

AcctTwo is headquartered in Houston, Texas. For more information, please visit http://www.accttwo.com or call 713-744-8400. Connect with AcctTwo on LinkedIn, Twitter, Facebook, Google+, or Youtube.

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Topics: Blog ROI return on investment accounting software information systems Software Total Cost of Ownership (TCO) SaaS accounting outsourcing Software Evaluation Software Return on Investment (ROI) Software as a service Informational Featured Posts total cost of ownership Consideration