AP Automation: TCO – The True Costs of Invoicing

ID-10095222Are you inspired by APA presentations and promises? Are ready for action? Don’t act too fast! The Total Cost of Ownership (TCO) is that what really matters. Before you make a buying decision, make sure you look at the total cost of ownership, not just the purchase price. This piece is meant to help you better understand the TCO of APA software.

Why is this important?

Knowing ownership costs over five-year period can help you make the best APA choice. Discussion of different APA licensing models were discussed in our previous blog post: software purchase; subscription; and, transactional. Please review so you can compare and prepare.
Depending on the model, the costs associated with a license can vary greatly:

Perpetual (Software Purchase)
   Year 1: Software, Implementation, & Support
   Years 2-N: Support (~20% of software price).
Software Subscription (Lease/SaaS)
   Year 1: Software, Implementation, & Support
   Years 2-N: Software & Support price
Transactional
   Year 1: Implementation & Per-Invoice Volume Price
   Years 2-N: Per-Invoice Volume Price

The biggest TCO factor is the cost of the ongoing people resources needed to maintain and implement the software, as well as to provide training and support. These costs are almost always a separate charge and can be between 50 and 85% of the TCO for the solution.

Cost comparison per year

The following chart demonstrates the range of potential costs associated with purchasing a software, subscription or transactional licensing model. If an organization handles 1,000 invoices monthly, $2.00 each, it would come to $24,000 per year.

cost_comparison_per_year

Pricing per invoice (transactional model) may seem less expensive at first. If you complete a 2+ year TCO, the software-based model above comes out better. Transactional model works well if your invoice volume is predictable and does not change in out years. In fact, it can change significantly. With low cost of entry, subscription is the best model for the beginning as the price is divided into almost equal parts.

Summary & Summary Table

Cost of Ownership Year 1 Year 2 Year 3 Year 4 Year 5 5-yr Total
Software Purchase
and Support
$50,000 $10,000 $10,000 $10,000 $10,000 $90,000
Software Subscription (Lease, SaaS) $20,000 $20,000 $20,000 $15,000 $15,000 $90,000
Transactional $24,000 $24,000 $24,000 $30,000 $40,000 $142,000

When making a buying decision, consider all the expenses you might incur. Usually we only focus on the software costs and underestimate intangible costs that we face up later. Look at the situation from a ‘30,000-foot view’ and beware that the price of the software is not the bottom line number. It also includes implementation, end-users training, customization and many other things. In 5-year perspective, these costs can have a great impact on the overall TCO predication.

How do you evaluate a TCO? What’s your experience in purchasing a software? Share it with us!

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