Glossary
The sum of everything a piece of software costs over its lifetime: licences or development, implementation, hosting, maintenance, training and internal time, rather than the purchase price alone.
Total cost of ownership (TCO) is the sum of every expense a piece of software generates from the day it is chosen to the day it is replaced. The price a vendor quotes is only a fraction of it, often less than a third over five years.
The initial cost covers licences or development, scoping, configuration, data migration and training. The recurring cost groups subscriptions, hosting, support, upgrades and the extensions added over the years. The internal cost, the one most often forgotten, is the time the team spends on the project, on workarounds and on re-entry when the system does not do everything.
A standard cloud ERP starts fast with a low investment, but its per-user subscription never stops and climbs with the team. Custom software asks more up front, then costs hosting and maintenance, with no licence. For an SMB of 30 users or more, the crossover often lands between year three and year five. That is why the comparison must be made on five-year TCO, never on the initial quote.
Build a table with five columns (one per year) and one row per expense item, for each option under review. Add the cost of doing nothing: hours lost in Excel have a price too.
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Five years is the convention for management software: long enough for recurring costs to weigh in, short enough to stay predictable.
Yes. Time spent on training, data entry and workarounds converts to salary. A system that saves ten people two hours a week is worth more than $25,000 a year.
