The costs of a new software system extend beyond the initial system price, which is often presented in terms of a licensing fee. In fact, licensing costs typically represent only about one-third of the total costs of a software installation; you'll likely have to pay some one-time installation charges, as well as other ongoing costs. So you have to know what to look for when comparing vendors or examining a new donor management system.

When evaluating software, you have to consider what is included, and what must be added on. Modular systems—sold with additional functionality available at an additional cost—can be beneficial because the organization does not have to invest in functionality it doesn't need yet. Then again, a basic system that initially seems inexpensive may not be valuable to your organization without the extra-cost module.

Software updates pose another expense, as software vendors issue maintenance releases to existing customers to keep up with changing technology. These costs are often rolled into a technical support plan as ongoing fees. Support and maintenance, typically a percentage of the software licensing fees, will be the minimum of your annual costs for the software package. Training and support can be a substantial cost for nonprofits, ranging per vendor from less than $1,000 to $5,000 per user for a week of training per new user, representing 10% to 15% of the salary of each user.

When evaluating software, it is critical to have an adequate summary of the true cost of ownership over time, including hidden costs that crop up after you sign the contract. Different systems and support services will be right for different organizations. No matter the end costs, you need to make sure your organization is subjected to the lowest possible financial risk, and is as informed as possible about the true costs of a given software package.

For more help in understanding long-term and hidden costs in software deals, download Sage Software's whitepaper for nonprofits, Understanding Total Cost of Ownership (TCO).

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