Software Licensing Cost – Understanding the Value

The first rule of computing is to never do anything by computer that you can do faster by hand.

Software License CostFrequently, when discussing the cost of Software Licenses, business owners grumble at the prices charged per copy by the usual suspects such as Microsoft, Intuit, Salesforce, or Sage ( – to name a few.)  They proclaim that it is like pouring money in to a hole and that they don’t understand why they need to have the latest versions nor do they understand why they would want to make sure that every employee has a copy of the Software.

I ask why they feel that there is no value or not as much value as the developer of the software assigns to the per copy license.  In some cases I get a legitimate complaint that not every employee fully utilizes the software, but in most cases the business owner just has an arbitrary value assigned to the software based on their own perception of what they think it is worth or should cost.

Quickbooks 2012Let us use a copy of the Quickbooks Premier Small Business Accounting Software with a single seat/copy price of approximately $400 as an example.   First, I ask the business owner what is he paying is bookkeeper – the person using the Quickbooks software?  For simplicity we will use $45,000 (which is the average salary for a bookkeeper in New York City.)

Ledger Pad and PencilI ask the business owner what did his bookkeeper use before Quickbooks?  The answer, as one would expect, Green Ledger Pads and a large number of mechanical pencils with gum erasers and a Check Register provided by the Bank.  I then go on to ask how were financial reports such as daily cash receipts, cash flow, sales, interim income statements, accounts receivable, and accounts payable produced.  The obvious answer of course – all by hand – and it took a tremendous amount of time.  I would be remiss if I did not ask if there were ever any math errors in the ledgers and reports – again – of course a few would crop up here and there.

Now, for the small sum of approximately $400 all of the reports mentioned above are available at the click of a mouse in a matter of minutes instead of hours or days.  Assuming the original transactions are entered correctly, the math errors have been virtually eliminated.  Now, your bookkeeper can process more transactions in less time because recurring transactions can be memorized and re-entered as needed within seconds.  Reports can be memorized as well and refreshed quickly with current data at will.

Calculator DollarsIn short, the bookkeeper is saving dozens of hours per month by automating tedious data entry and reporting tasks.  In keeping with our example, if $45,000 translates in to approximately $22.50/hour based on a 2,000 hour work year then in less than 18 hours, the Quickbooks Software has paid for itself in increased productivity, all within one month of purchase.

To validated this savings, Intuit, the makers of Quickbooks did a survey and found that in the most conservative responses, 25% stated that they saved up to five hours per week by using Quickbooks.

ProductivityMy point is that any software product that makes you or your staff more productive, allowing greater efficiency and the ability to generate higher output which translates in to revenue for your company is usually well worth the nominal per user/copy/seat charge.

Software licenses do not cost, they pay.

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