Purchasing Human Capital Management (HCM) software is one of the biggest decisions a company will make. They are designed to facilitate the process of talent management and performance management and improve an organisation’s human resources.
Unlike other HR software that deals with general workforce management such as payroll, leaves, claims time and attendance, human capital management software focuses on the development of employee growth within an organisation.
The purpose of this article is to shed light on the process that software vendors use to come up with pricing and quotations.
We will explore the basics of HCM pricing, key areas to look out for, and how to protect yourself should you decide to go ahead with purchasing HCM software for your organisation.
Who is this article for?
This article is for anybody who is involved in the Human Capital Management (HCM) software procurement process, from CHROs to L&D managers and HR executives.
If you are researching, finding, or approving decisions related to the purchase of an HCM solution, take note of the points raised in this article.
What is the pricing structure of human capital management software?
1. Licensing and Implementation Cost
Before you decide on any human capital management software, there are two aspects you should look into — licensing fees and implementation fees.
Every year, you pay the licensing fees as per one user. Vendors like SAP SuccessFactors, Oracle, and Cornerstone OnDemand generally structure their prices in this method.
It is an annual recurring cost charged based on the number of HR software modules you choose.
As for Cornerstone OnDemand, you can choose from seven modules based on your business needs. The licensing fee for each module costs around US$ 20,000 for 1,000 users.
The more users subscribe to the service, the cheaper the licensing fee. For example, a 5,000-user subscription plan may only cost US$ 50,000 as compared to a 1000-user subscription plan at US$ 20,000.
As for the implementation fees, you only pay one time to configure the software for initial use, usually ranging between US$ 15,000 to US$ 30,000 per module.
As for the implementation fees, you only pay one time to configure the software for initial use, usually ranging between US$ 15,000 to US$ 30,000 per module. As HCM systems are complex and encompass many features and functionalities, you will need to engage a software implementor to assist with the setup.
The software implementor will charge an implementation fee based on the project scope. Like the licensing fees, you only pay the implementation fee for each module.
Each module works differently and requires a specific type of configuration. In certain modules, you need the expertise of professionally certified consultants to help you configure based on your business requirement.
2. Duration of Contract
Most HCM software requires a minimum contract duration. Enterprise-grade software like SAP and Cornerstone OnDemand, for example, require a minimum 3-year subscription.
Therefore, expect to pay a recurring licensing fee every year. You could receive a discount of around 30% on the first year of subscription.
3. Additional Costs
Any additional integrations, customisations, or services that are not originally included in the scope of work or project tender documents can cost extra, depending on how you want to customise the features during implementation.
One of the most popular extensions is managed services (i.e. the outsourcing of HCM admin-related functions). That means, you allocate a fixed number of hours to solution consultants every month to help administer your HCM system, which will cost from US$ 100-250 per man-day.
Why Are Some Vendors Quoting a High Price?
1. Vendors want to extract maximum value
Many vendors receive incentives to charge high prices on a “quotation” basis, as clients do not always have appropriate benchmarks to compare prices.
Therefore, opt for a competitive tender or bidding process to get the best deal.
2. Specialist vs Generalist Software Implementors
Although software implementation fees are one-off, you could still pay more than expected.
In the software implementation space, there are specialist and generalist service providers. Generalists are usually large implementation houses that carry various products and charge more because of the higher headcount.
The specialists focus on a very narrow scope of products and are more experienced and efficient in a specific implementation.
How do I Make Sure I Am Getting the Best Value?
1. Go into specific features to understand the price
The price is usually the main criteria for clients to assess the suitability of an HCM system.
Our supplementary advice is to deep dive into the features and scope of work that the vendors provide.
Certain vendors may quote lower, but the features provided may not be as comprehensive as others.
2. Allocate extra budget for customisation
You have finally reached an agreement with your provider! Now comes the implementation phase, and this is when you realise that you may request customisations beyond the scope of the signed contract. Vendors can take this opportunity to charge you more for the extra setup.
Therefore, we would advise you to allocate a budget aside for customisation during the tender/quotation stage. You can do that by purchasing a fixed amount of (e.g. 50 man-days) of service that can be used during the implementation process for customised features.
3. Be thorough in your tender process
Be as thorough as possible during your tender process to avoid potential issues with your vendors.
We have seen many clients stumbled during the process as they were unsure of the technical requirements of the HCM project. Assign the project to competent colleagues to manage the procurement process, including all the required features clearly stated in the contract.
Request a demo session from your vendor to thoroughly assess the specific scenario you want to see. For example, if you want to know if the HCM product can perform a 360-degree performance review, you should communicate that and allow the vendor to show you the end-to-end process for the specific scenario.
Make the most of your human capital management investment
Purchasing an HCM system is a long-term commitment and will require careful planning. Do not hesitate to seek a second opinion. Make sure to be thorough in the tender process. In understanding how vendors price HCM systems, we hope to bring more transparency and trust to our clients.