Savvy Saving on Software

All set to shell out thousands to a vendor? An insider shares his secrets for businesses looking to purchase business software

by Gene Marks

My company resells business software. So I have learned a thing or two about buying from big vendors and I would like to share some of that wisdom with my fellow penny-pinching businesses. For starters, big software companies really only care about two things: one, how many licenses they can sell, and two, how to ensure that their customers are roped into annual support agreements. Do they care about your long-term profitability? Nah. All that matters to them is that you're paying your maintenance fees.

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 that care about their customers and provide great software at a great price. They're really just great.

Smart Timing

Now that I've gotten that out of the way, let's go to the issue at hand. Say 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 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.

First, 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. The competition is fierce out there. Software vendors want so desperately to sell more licenses that they'll shave off a few points to make sure a deal doesn't go away.

Find out the vendor's fiscal yearend. 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, 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.

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!

Smart Planning

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 done 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.

Focus your payments around reports. In the end, whatever you're buying is just a database, no matter how many ways the software company wants to convince you that it's the cure for cancer. You need certain reports out of the system, like open orders, jobs in production, 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.

Spending more than 10 grand on that inventory management system? Go to the vendor's location and get trained before you buy. Admit it, you've always wanted to visit North Dakota in February, right? Once there, 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 or her paycheck, conveniently forgot to tell you. 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 junkie 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.

Gene Marks, CPA, is the owner of the Marks Group, which sells customer relationship, service, and financial management tools to small and midsize businesses. Marks is the author of four best-selling small business books and writes the popular "Penny Pincher's Almanac" syndicated column. He frequently speaks to business groups on penny-pinching topics. More penny-pinching advice from Marks can be found at www.quickerbetterwiser.com.