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What Are the True Costs of Acquiring New Software?

written by: Profacgillies•edited by: Ronda Bowen•updated: 7/6/2011

There’s lots of software around these days that appears to be free to buy: whatever happened to “there’s no such thing as a free lunch?" Well, there still isn’t. The true cost of acquiring new software may include hardware upgrade costs, training costs, loss of productivity and opportunity costs.

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    Introduction

    This is the second part of a series of articles entitled “Open source and other licenses". The purpose of this article is to help you consider the true cost of acquiring new software. This may include hardware upgrade costs, training costs, loss of productivity and opportunity costs, as well as licensing costs.

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    Direct Costs

    The direct costs associated with acquiring new software are generally software licensing, hardware upgrades and external training fees. Software licensing can vary from zero to a lot, and even the initial figure is zero, there may additional fees if you want to use it on more than one machine eg an office desktop and a laptop on the move, or for making money rather for non-profit-making purposes, or beyond a trial period if you have downloaded a piece of shareware for free.

    Very often, upgrades make greater demands upon your hardware than previous software versions. This may not be apparent at the start, but after a while sluggish performance may become frustrating and you may find yourself spending extra money on more memory or in the worst case replacing your machine. For more on this, see http://www.brighthub.com/computing/hardware/articles/16818.aspx

    Training can be a hefty item. Courses are often very expensive. Training for open source applications may be no less than for proprietary software since this is often where how third parties make money out of free software. Books can be a cheaper alternative, especially if they can be purchased at significant discounts. Be warned though, if your title is a little esoteric, you may be better going to a specialist online retailer rather than one of the big boys such as Amazon where discounts on specialist titles can be small.

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    Indirect costs

    So far, you may thinking that this article is stating the hemorrhaging obvious, but the real killer can be indirect costs. They are much harder to measure, may even go unnoticed and cannot be offset against tax if you are using the software for commercial purposes, unlike direct costs. The biggest indirect costs all revolve around your time. If you are using software for commercial purposes, this is your most valuable asset.

    It takes time to buy and install the software, but this should not be hugely significant unless

    a) your time is incredibly valuable (in which case, pay someone else who is cheaper to install it!), or

    b) the install process is very complex or unreliable (in case are you sure you want this software?)

    But having installed the software, you are almost certainly going to lose time as you work out how to use the new software. The cost to you of this time is not based on how much you are paid; it is based on the value of your time, which is the money you could be earning whilst you were working out how the software worked. Or, if you go off for the day to attend a training course, the true cost is the cost of the course, plus the money you could have earned if you hadn’t been there! But all this needs to be offset by the benefits of the new software (and if there aren’t any, why are you buying it?)

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    Conclusions

    The cost of acquiring software, especially free software may be bigger than you think. Here’s a checklist for you to assess true costs:

    Direct costs

    1. What is the basic license cost?

    2. Are there additional costs for commercial use?

    3. Are there additional costs beyond a trial period?

    4. If you want to use it on more than one machine, are there additional costs?

    5. Is your current hardware adequate? If not how much will an upgrade cost?

    6. Do you need a training course, and or a book to help you with the new software, and how much will they cost?

    Indirect costs

    1. Is it a simple and quick installation?

    2. How long will it take before you are back up to full speed?

    3. How much would this lost time have been worth in terms of what you could have done?

    4. If you went on a course or read a book, how much would this time have been worth in terms of what you could have done otherwise?

    5. How much better will you be at making money with the new software?

    6. How long will it take you to recoup the money lost and make a profit on this upgrade?