A Penny Pincher's Guide to Buying Software

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My company resells business software. So here's a secret that I'd like to share with my fellow penny-pinching business owners: big software companies really only care about two things — how many licenses they can sell and how to make sure their customers are roped into annual support agreements. Do they care about your long-term profitability? Nah. As long as you're paying maintenance, that's all that matters.

Now, before I get hate mail from furious software companies, let me make the usual disclaimer about how there really are lots of great companies out there who care about their customers and who provide great software at a great price. They’re really just great.

Okay? So now that I’ve gotten that out of the way, let’s go to the issue at hand. You’re buying a new accounting, database, inventory, or order entry system for your company. You don’t want to overpay. You haven’t done this a lot. You’re inexperienced with this business. You’re uncomfortable buying something you can’t really see. Here are a few ways to save some big bucks — and you’re not going to hear this from the software companies either:

  1. For starters, never believe list price.

    It’s a lie. If you’re spending more than $5,000 for a piece of software, you’ll get a lower price just by asking. It’s a jungle out there. The competition is fierce. Software vendors want so desperately to sell more licenses that they’ll shave off a few points or even sell their sisters into slavery to make sure a deal doesn’t go away.

  2. Find out the vendor’s fiscal year end.

    Like any used car salesman, a software company will always play “let’s make a deal” when a period end is coming. Target your negotiations for the end of a month, the end of a quarter, or (ideally) the end of the fiscal year. Software companies have regional representatives who get paid a commission on every license sold. They become ravenous for a deal as a period end approaches. Encounter a “problem” near the end of a period. Blame it on “cash flow” or “budget issues.” Ask for a bigger discount or some other throw-in. Watch (and enjoy) as the software company squirms, then caves.

  3. Better yet, don’t buy the software at all until you go live.

    Shocking! Tell your local partner to install, customize, and train you using their own “not for resale” license. Make sure to pay the partner for their time. (That’s how they make their money.) But don’t buy the actual licenses until you’re live with the new system. Are you being a jerk? No. You’re being forced to do this because most software companies don’t like to refund money after a shipment has been made. And they want to get those annual maintenance fees in and the renewal clock ticking as soon as possible, even if you’re not using the system yet!

  4. Good penny pinchers also do a lot themselves.

    They assign an internal administrator, or system champion. Maybe it’s a good power user or even the office manager. But usually it’s someone who will take the extra time to get really good with the system. That way you’re not shelling out huge dollars to the local partner or software company for services that can be provided internally. Take the extra time to learn the system and you can wave goodbye to those exorbitant consulting fees. Software companies won’t tell you about this administration cost. Make sure to include it in your budget.

  5. Focus your payments around reports.

    In the end, whatever you’re buying is just a database, no matter how many ways the software company tries to convince you that it’s the cure for cancer. You need certain reports out of the system, like open orders, jobs in production, accounts receivable agings, number of bathroom visits per employee, whatever. Agree in advance what reports you want to see from the system, and when your system is delivering this information, you deliver your payment. It’s a very black-and-white approach to dealing with those software vendors who love gray areas.

  6. Go to the vendor’s location and get trained before you buy.

    Spending more than 10 grand on that inventory management system? Admit it: you’ve always wanted to visit North Dakota in February, right? Go armed with questions. Beat the crap out of the guy doing the training. (He won’t be a sales guy, so you’ll get the real dirt.) Ask the other attendees how much they’re suffering. Do shots with customer service. Find out about any skeletons in the closet that the salesperson, eager for his paycheck, conveniently forgot to tell you about. Even if you decide not to move ahead, the thousand bucks you spent for the training is better than the tens of thousands you would’ve spent on some bug-ridden, junky application.
Hate-mail-avoidance time again: there’s a lot of great software made by fine, decent, and reputable software companies out there. But don’t be a sucker. Be on your toes. And keep these penny-pinching tips in mind before committing.

Like this list? There are 500 more just like it in the Streetwise Small Business Book of Lists (Adams Media 2006). To find out more visit www.smallbizlists.net.

About the Author

Gene Marks, “The Penny Pincher,” is the owner of The Marks Group, PC (www.marksgroup.net), a 10-person CRM consulting firm based outside of Philadelphia, PA.

The Marks Group provides customer relationship (GoldMine, Microsoft Dynamics CRM), financial (QuickBooks, Microsoft Dynamics GP, Traverse), and service (HEAT) management software and services to small and medium-sized companies.

For more information please call 888-224-0649, ext. 801, or email gene@marksgroup.net.
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