Many first time purchasers of
accounting software encounter sticker shock
regarding the cost of implementing accounting
software systems. The reality is that the cost of
implementing a mid-market to high-end accounting
software system will typically range from 1:1 to 2:1
compared to the cost of the software. In smaller
cities and rural areas such as Rome, GA or Brighton,
MI, the range is typically 1:1. In larger cities
such as Atlanta, Dallas, or Phoenix the range is
typically 1.5:1. In the largest cities such as
Boston, New York City, and San Francisco you should
expect to pay closer to 2:1.
For example, if you purchase
$25,000 worth of software, you could expect to pay
$25,000, $37,500 and $50,000 in implementation fees
in Brighton, Atlanta, and New York City
respectively. Remember - this is just a rule of
thumb and the difference in these implementation
costs mostly reflect higher rent and labor costs in
those larger markets.
Additionally, the
implementation costs charged by larger, more
established resellers will typically range a little
higher than smaller, less established resellers for
several reasons as follows:
-
Because they are better, they can demand a
higher price.
-
Larger resellers typically devote more resources
to support, hence that's why they became larger
resellers.
-
Larger resellers will typically work hard to
achieve customer satisfaction, even if that
means losing money on a deal - once again that's
how that got to be larger resellers.
-
Larger resellers will typically spend more on
training their personnel, attending the annual
conferences, and investing in computer labs,
facilities, projection systems, etc.
You will also see this ratio
slide downward a little as the number of user seats
grows higher. For example, assume the same company
purchases the same amount of software, only they
price it out for 25 users and 100 users. The ratio
at 25 users will probably be higher (let us say 2
to1) while the ratio for the quote assuming 100
users would be lower (let us say 1.5 to 1). This is
because there are economies of scale at play.
Additional users can typically be accommodated for
little extra costs, and this savings is usually at
least partially passed along to the customer.
This rule of thumb is harder to
apply when purchasing a cloud-based solution,
because there is no up front costs. In this case, I
recommend that you add up the cloud's solution's
rental fees for the first five years, and then apply
the 1:1 or 2:1 ratio rule mentioned above.
OK, But
Why Does it Take $25,000 to copy a program from a CD
ROM drive to my Hard Drive?
Many people do not understand
why the implementation costs are so high. Let me try
to help you understand these costs. First of all, I
can assure you that very few resellers are driving
Lamborghinis - most of them appear to be generating
a modest living, and not much more. In other words I
have not seen much evidence that resellers are
raking in the dough. The evidence suggests just the
opposite. I've often encountered staff of accounting
software vendors who tell me that they "Used to be a
reseller". However I have almost never encountered a
reseller who told me that "I used to work for the
accounting software vendor, and decided to go out on
my own". It would stand to reason that if resellers
made a killing, many accounting software employees
would jump ship and get into that line of business -
but 95% of the time it works the other way around.
Here is another perspective.
When you pay for implementation of the new system,
implementation actually only accounts for 10% of the
costs. Training is actually the major activity that
occurs during the implementation. For example,
presented below is an example of where the time is
actually spent assuming a 25,000 implementation with
12 modules, 5 users, and just 1 installer.
|
Assuming 12
modules, 5 Users, 1 Installer |
Hours |
Rate |
Total |
|
|
|
|
|
|
Evaluation/Selection: |
|
|
|
|
|
Administrative
Time |
6 |
125 |
$
750 |
|
|
Document
current needs, system |
8 |
125 |
1,000
|
|
|
Travel Time |
8 |
125 |
1,000
|
|
|
Consulting
Time |
16 |
125 |
2,000
|
|
|
Research |
6 |
125 |
750 |
|
|
Demonstrations |
4 |
125 |
500 |
|
|
Report |
6 |
125 |
750 |
|
|
Placing orders
for hardware & software |
4 |
125 |
500 |
|
|
|
|
|
|
|
Implementation: |
|
|
|
|
|
Install system |
8 |
125 |
1,000
|
|
|
Travel Time |
22 |
125 |
2,750
|
|
|
Configure
Printers |
2 |
125 |
250 |
|
|
Configure
Users |
2 |
125 |
250 |
|
|
Preliminary
Training |
6 |
125 |
750 |
|
|
Research &
Preparation |
10 |
125 |
1,250
|
|
|
One on One
Training |
16 |
125 |
2,000
|
|
|
Compile
Accounting Data |
6 |
125 |
750 |
|
|
Input
Accounting Data |
6 |
125 |
750 |
|
|
More One on
One Training |
16 |
125 |
2,000
|
|
|
Process Month
End & Produce Reports |
8 |
125 |
1,000
|
|
|
More One on
One Training |
16 |
125 |
2,000
|
|
|
Create Report
Formats |
12 |
125 |
1,500
|
|
|
Administrative
(Time Sheets, Billing, etc) |
12 |
125 |
1,500
|
|
|
|
|
|
|
|
|
|
|
|
$ 25,000
|
In this example, we see that
actual implementation time is only $1,000. However
training time which consists of 1 pre-training class
and three 90-minute training sessions per module
(introduction, setting up, and using) accounts for
the lion's share of the work performed. Studies show
that between 50% to 70% of all accounting software
system implementations fail to some degree, and
those failures are mostly attributed to inadequate
training.
In my career, I've helped about
275 companies implement their accounting systems,
and about half of those were companies that had
previously purchased a package, had little or no
training, and then brought me in several years later
to clean up the mess and make things work. Don't
sell yourself short - find a reseller who trains
well, and pay them the going rate - it's critical
that you do so.
I hope you
find these insights useful.
