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Implementation Costs


A discussion about the cost associated with
implementing an accounting system or ERP solution
 

Many first time purchasers of accounting software encounter severe sticker shock regarding the cost of implementing accounting software systems. The reality is that the cost of implementing a mid-market to high-end accounting software system will typically range from 1:1 to 2:1 compared to the cost of the software. In smaller cities and rural areas such as Rome, Georgia or Birmingham, Alabama, the range is typically 1:1. In larger cities such as Atlanta, Georgia or Dallas, Texas, the range is typically 1.5:1. In the largest cities such as Boston, New York City, and San Francisco you should expect to pay closer to 2:1.

For example, if you purchase $25,000 worth of software, you could expect to pay $25,000, $37,500 and $50,000 in implementation fees in Birmingham, Atlanta, and New York City respectively. Remember - this is just a rule of thumb and the difference in these implementation costs mostly reflect higher rent and labor costs.

Additionally, the ratio for the larger, more established resellers will typically range a little higher than smaller, less established resellers for several reasons as follows:

  1. Because they are better, they can demand a higher price.

  2. Larger resellers typically devote more resources to support, hence that's why they became larger resellers.

  3. Larger resellers will typically work hard to achieve customer satisfaction, even if that means losing money on a deal - once again that's how that got to be larger resellers.

  4. Larger resellers will typically spend more on training their personnel, attending the annual conferences, and investing in computer labs, facilities, projection systems, etc.

You will also see this ratio slide downward a little as the number of user seats grows higher. For example, assume the same company purchases the same amount of software, only they price it out for 25 users and 100 users. The ratio at 25 users will probably be higher (let us say 2 to1) while the ratio for the quote assuming 100 users would be lower (let us say 1.5 to 1). This is because there are economies of scale at play. Additional users can typically be accommodated for little extra costs, and this savings is usually at least partially passed along to the customer.

Yeah, But Why Does it Take $25,000 to copy a program from a CD ROM drive to my Hard Drive?

Many people do not understand why the implementation costs are so high. Let me try to help you understand these costs. First of all, I can assure you that very few resellers are driving BMW Boxters -most of them appear to be generating a modest living. in other words I have not seen much evidence that resellers are raking in the dough. The evidence suggests just the opposite. I've often encountered staff of accounting software vendors who tell me that they "Used to be a reseller". However I have almost never encountered a reseller who told me that "I used to work for the accounting software vendor, and decided to go out on my own". (David Harris at EC Internet )is the only one I can think of. It would stand to reason that if resellers made a killing, many accounting software employees would jump ship and get into that line of business - but 95% of the time it works the other way around.

Here is another perspective. When you pay for implementation of the new system, implementation actually only accounts for 10% of the costs. Training is actually the major activity that occurs during the implementation. For example, presented below is an example of where the time is actually spent assuming a 25,000 implementation with 12 modules, 5 users, and just 1 installer.

Assuming 12 modules, 5 Users, 1 Installer Hours Rate  Total 
       
Evaluation/Selection:      
  Administrative Time 6 125        $     750
  Document current needs, system 8 125          1,000
  Travel Time 8 125          1,000
  Consulting Time 16 125          2,000
  Research 6 125              750
  Demonstrations 4 125              500
  Report 6 125              750
  Placing orders for hardware & software 4 125              500
         
Implementation:      
  Install system 8 125          1,000
  Travel Time 22 125          2,750
  Configure Printers 2 125              250
  Configure Users 2 125              250
  Preliminary Training 6 125              750
  Research & Preparation 10 125          1,250
  One on One Training 16 125          2,000
  Compile Accounting Data 6 125              750
  Input Accounting Data 6 125              750
  More One on One Training 16 125          2,000
  Process Month End & Produce Reports 8 125          1,000
  More One on One Training 16 125          2,000
  Create Report Formats 12 125          1,500
  Administrative (Time Sheets, Billing, etc) 12 125          1,500
         
            $  25,000

In this example, we see that actual implementation time is only $1,000. However training time which consists of 1 pre-training class and three 90-minute training sessions per module (introduction, setting up, and using) accounts for the lion's share of the work performed. Studies show that between 50% to 70% of all accounting software system implementations fail to some degree, and those failures are mostly attributed to inadequate training.

I hope you find these insights useful.

- END -
 


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