Something I hear frequently from friends and clients is that they don’t want to pay for software. And why should they? With all the enticing open source and free software apps available, not to mention all the free Cloud services, why would anyone want to pay for software?

I won’t give you the “you get what you pay for” speech about quality. It’s just not true. There are a lot of good quality open source and free software products available. Rather, I’ll offer you some thoughts about the true cost of software.

The term Total Cost of Ownership or ”TCO” is commonly used in business accounting to represent not only the initial purchase price of a product, but all the costs associated with using the product over it’s useful lifetime. As an example, think about your car. Let’s say you paid $25,000 for it. You keep it four years and sell it for $10,000. So it only cost you $15,000 to own it for four years. During those four years you get 16 oil changes at $40 each. You buy a new set of tires for $600. You drive 48,000 miles averaging 24 MPG. That’s 2,000 gallons of gas at about $3.75 per gallon. So far that’s $8,740 added to the cost. Now add your insurance, registration and property tax. That’s at least another $3,000. If it goes out of warranty and has some mechanical problems add that to the cost. Also add any body damage (including dings and scratches) you need repaired. Did I mention washing and waxing? I’ll stop here. You can see how the TCO of the car is easily double the cost of the car itself.

Now let’s look at software. Like a car, the TCO includes much more than the initial cost. First you need to pay your IT staff to install and configure the software. At an average burdened rate for an internal systems engineer or outsourced tech ranging from $75 to $150 per hour, that adds up quickly. Also include the cost of installing maintenance upgrades every few months. Next consider training. Your employees will need to know how to use it. Whether you offer formal training or just buy them a book there will be some time spent learning various aspects of the software over its lifetime. This includes the lost productivity that comes when one employee asks another a “how to” question. When you add it all up, the initial cost of the software is only a small part of the TCO. Free or not, software can easily end up costing $500 to $1,000 per employee per year. Over 3 years, the initial cost becomes insignificant.

But perhaps the biggest cost associated with software is the downtime that occurs when it just doesn’t work. Here’s where the “you get what you pay for” speech applies. With retail software and paid Cloud services you get support. This might be a phone number you can call or an email address you can write to where a service rep is paid to help you get back up and running as quickly as possible. Contrast this with most freeware or free services. With these you typically have to post your problem to a user forum and hope that someone who is volunteering for free will take the time to respond. And if they do, you have to hope they know the product well and give correct advice in easy to understand language. You also have to hope they respond quickly. As long as the question remains unanswered, your business, or at least a portion of it, is not operating. I don’t run my business based on “hope” and you shouldn’t either.

One more pitfall I’ve seen: In an attempt to save money companies sometimes force a free product to do something it was never designed to do. Like using Dropbox as a server backup solution (yes that’s one I’ve seen). That’s a bad idea for many reasons that I won’t go into here.

If you’re looking to save money, don’t skimp on the things that are keeping you in business. Free software is not free. Frugality applied improperly can be expensive. If your business is relying on free software right now and you’d like to investigate your options and their costs, I’d be happy to discuss them with you.  Feel free to call or write us or post below.