How to Determine the True Cost of New Software for Your Nonprofit

This article was originally posted on NonProfit PRO’s Nonprofit Tech Matters blog.

When it’s time for new software for your nonprofit, one of the first things you’ll need to know is how much the technology will cost. In other words, will it work within your budget? That might sound simple – you just visit a software vendor’s website or call up one of their sales representatives and find the price, right? Not exactly.

While there is a growing trend of vendors providing pricing on their website, even these platforms require further review to ensure there aren’t other fees involved.  A few examples include:

Other software pricing – such as that of customer relationship management (CRM), fundraising, peer-to-peer fundraising, marketing, and other software platforms – can get more complicated or are essentially custom offerings. There are multiple aspects to pricing for these types of software solutions, including one-time fees and ongoing costs. There can also be additional costs that aren’t always apparent at first.

So, how can you determine the true cost of software for your nonprofit?

Here are nine critical things to consider:

  1. Licensing fees
    The pricing model for most vendors these days is Software as a Service (SaaS). This model requires a monthly, per-campaign, or annual licensing fee, which has a start and end date. Contracts often include an auto-renewal, so be sure to review the fine print before signing.
  2. Transaction fees
    One of the most appealing aspects of any agreement (for software vendors) is often the recurring, passive income generated above and beyond the licensing fees via transaction fees. These fees often range from 1 – 5% and very often do not include merchant services fees.
  3. Payment processing/merchant fees
    Speaking of merchant fees, some software tools include a payment processing system, while others require an additional payment processing solution. Sometimes there is a payment processing fee in addition to the actual cost of the product.
  4. Implementation fees
    Many modern software platforms are relatively easy to use and include introductory tutorials and other online resources that allow for a straight-forward implementation that can be accomplished by your program staff or IT team (with minimal or no involvement of the software vendor or a third-party technology firm).
    However, some can become more complex – for example if you are implementing a new CRM platform and need to integrate it with other systems you might be using. In this case, you’ll likely want to engage with a third-party technology firm (for example, Cathexis Partners provides this kind of service) to ensure everything is set up properly to meet your organization’s specific needs.
    If you’re migrating to a new software system (versus setting up a completely new type of software that you’ve never had before), there will also be a cost to migrate your data from your old system to the new system. This will cost the time of you and your team and might also include fees from the new vendor or a third party to assist with the data migration.
    And although this shouldn’t be the case, some software vendors will charge you to extract your data (including notes and attachments) from their system. So be sure to check your contract for your existing system and factor that into your implementation costs.
  5. Custom development
    Many software products include extensive functionality “out-of-the-box” that simply needs to be configured for your organization as part of the implementation. However, if your organization has complex or unusual processes, you might need someone on your IT team or a third-party developer to custom-build added functionality for your new system. Remember: The less flexible your new system is, the more likely you’ll need to pay for custom development at the time of implementation or down the road as your organization’s needs and processes evolve.
  6. Maintenance costs
    Your new software will require a certain amount of maintenance. You’ll need to keep your data clean. You’ll also need to troubleshoot issues and provide a certain amount support for your staff. Assess your organization’s internal resources, and consider if you need additional help from the software vendor or a third-party technology firm to keep your system working for you.
  7. Product upgrade fees
    Some software vendors include the cost of product upgrades as part of the system. Others charge a fee. Also, if you have custom development as part of the implementation of your product, a product upgrade might “break” the customizations, requiring you to pay for additional custom development to make the customizations work with the new version of the product. Keep these factors in mind as you assess the long-term cost of the product.
  8. Training costs
    With some software, training (usually online, self-service) is provided for customers. But with other software, especially if you have an implementation of the product that is highly customized, you might need to pay the software vendor or a third party (typically the company that completed the software implementation for your organization) to provide training for your staff.
    Keep in mind that training isn’t a one-and-done activity. It’s important to plan for ongoing training for when you make changes to your software and as staff comes and goes – and this will be an additional cost.
  9. Negotiation
    Be sure not to assume that the initial proposal and/or contract from a software vendor is the final word. Software vendors are often willing to work with you on costs, such as contract length, annual fees, and transaction rates, as well as other points in the contract. Talk with them about your organization’s needs and concerns, and ask what they can do to adjust the contract.
    Here are some example areas for negotiation:
    • Ask if the vendor will give you a discount if you sign a contract for more than one year.
    • Ask for a small reduction in the per-transaction fee. If you expect a large number of transactions, then this might have a big (positive) impact on your organization.
    • If there are implementation fees, ask if there are other implementation options (different packages in which your team does more of the work or works with a third party to implement).

Understanding the true cost of new software for your nonprofit is essential for finding a solution that not only meets your functionality needs, but also your budget requirements. Be sure to keep the points in this article in mind as you search for new technology and ask the software vendor questions if pricing is not clear in any of these areas.

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