How To Identify and Avoid Unnecessary Costs When Switching Software

By: Stephan Miller - Guest Contributor on October 26, 2023
On this page:

As a leader in a small or midsize business, you're no stranger to the weight of making pivotal software purchasing decisions. Contemplating a switch from your existing software brings a mix of anticipation and apprehension: On the one hand, it holds the promise of improved efficiency and streamlined operations. On the other, unforeseen costs can impact your budget, business outcomes, and resources.

Switching software comes with its share of common costs—and identifying them early on can help avoid unwanted surprises. The right strategies can help position your company for a seamless software upgrade.

What are common software switching costs?

Switching from one Software-as-a-Service (SaaS) solution to another involves various costs that organizations need to consider. Identifying these costs before the switch and during the implementation phase allows organizations to mitigate potential challenges and ensure a successful transition.

According to Gartner's "Identify and Mitigate SaaS Switching Costs" report, here are some common SaaS switching costs and the stakeholders who can help reduce them [1]:

  • Cost of users and support staff: Switching software often requires that you train users and support staff on the new system. By involving the new vendor and internal stakeholders, organizations can ensure proper training programs are in place to minimize disruptions and maximize adoption.

  • Cost of organizational change management: Implementing a new software solution involves organizational change. Involve internal stakeholders to address the costs associated with change management, such as communication, employee training, and process adjustments.

  • Cost of new third-party providers: In some cases, organizations may need to engage new third-party providers, such as support providers, to assist with the transition. Collaborating with the new vendor and internal stakeholders will help identify and assess the costs associated with engaging these providers.

  • Cost for migration: This cost includes activities like recoding and migrating data from the old software to the new one. It's important to involve the new vendor, the incumbent vendor (if applicable), and internal stakeholders in planning and executing the migration process.

  • Early termination fees: If there are existing contracts with your current vendor, early termination fees may apply. It's important to involve your current vendor and carefully review the contract terms to understand the financial implications of early termination.

  • Implementation fees: The new vendor, along with internal stakeholders, should be consulted to understand the implementation fees involved, including any configuration requirements specific to the organization's needs.

  • Integration costs: Integrating the new software solution with existing systems may incur additional costs. Collaborating with the new vendor, internal stakeholders, and relevant third-party providers will help with the discovery and mitigation of these integration costs.

While the obvious reason to consider and manage these costs is that it can save your business money, there are other reasons, including:

  • Disruption of business objectives: Inefficient estimation of cost or resource requirements can lead to delays, unsatisfactory outcomes, or even the inability to achieve desired objectives.

  • Staffing and resource challenges: Switching software requires dedicated resources and efforts, which can divert attention from other day-to-day tasks and priorities. This can impact timelines and overall progress on critical initiatives.

  • Risk to overall budget: Underestimating the monetary costs of switching can lead to inaccurate budget forecasts. Engaging new support providers, working with third-party services, or encountering unexpected expenses can strain the budget allocated for the switch.

In the next section, we'll explore strategies for planning and avoiding unnecessary costs, giving you the power to make informed decisions that align with your budget, business outcomes, and resource considerations.

How to identify and avoid unnecessary software switching costs

During software switches, it's essential to handle anticipated costs and steer clear of unexpected expenses. The following step-by-step approach will help you identify and avoid these unnecessary software switching costs, ensuring that your transition is as cost-effective as possible.

Step 1: Determine the need for a software change

Before diving into the software switching process, evaluate your current software situation and determine if a switch is really necessary and beneficial for your business. It’s worth considering the alternatives to switching, such as upgrading, optimizing, or integrating your existing software.

To evaluate your situation, articulate your intended outcome and the business objectives you want to achieve with the software. This should help you assess the performance of your current vendor and whether there are any solutions that you can explore with them before switching.

To help with this step, you should involve your IT team, or a designated software switch leader, who can facilitate the conversations you have with your function-specific stakeholders (finance, HR, legal, etc.). They can help explain not only the desired software functionality or quality issue motivating the change, but also the specific business outcome that would be improved by the switch.

For instance, finance stakeholders might want to automate reporting or billing while the sales and marketing team may want more capabilities out of their social media marketing tools. IT leaders should have each group explain how existing software falls short of enabling these goals. See if they've fully explored modifications or add-ons with your existing provider before deciding they can't deliver what you need.

This process helps pinpoint where your current software falls short and ensures any new choice will better fit your business needs. A smart switch can save both time and money, boosting your day-to-day operations.

Step 2: Work with stakeholders to prepare for the switch

Once you've determined that switching software is necessary, it's time to bring together key stakeholders to get aligned on likely costs, success metrics, and vendor expectations.

Gather cross-functional teams together to brainstorm probable expenses like data migration, employee training, integrating systems, or any of the other costs covered earlier in the article. You might not be able to estimate every cost involved in the switch, but attempting to do so will help you plan and will become important when it comes time to negotiate with the new vendor.

Define concrete quantitative measures for what success looks like after moving to the new platform. For example, you might expect lead conversion rate to be boosted by 15% in the first six months. This type of measurable goal will help focus efforts and evaluate return on investment.

Set clear expectations for the training, support, and resources the vendor should provide during and after onboarding to ensure smooth adoption. Review any past or current relationships with this vendor to uncover opportunities to negotiate better pricing.

Consult with IT teams on required infrastructure upgrades and development resources needed to support the new platform and integrations. Factor all of these technical requirements into planning and budgets.

With input from all stakeholders, create a detailed transition roadmap outlining all time frames, budget allocations, team responsibilities, and success metrics. Getting cross-functional alignment and anticipating costs allows you to make smart software decisions, negotiate effectively, and minimize business disruptions during the transition.

Step 3: Mitigate costs with the new vendor

After compiling information on potential switching costs and establishing negotiation leverage, IT leaders can work with the new vendor to minimize expenses and speed implementation.

When negotiating contracts, it's crucial to clearly present all expected costs of the transition. Pointing out expenses that competing vendors might cover can persuade the new vendor to give you some perks, such as dropping certain fees or providing support for the switch. IT leaders should see if the vendor is open to reducing some costs, either by offering direct financial support or through services like technical assistance.

If other parts of your business already work with this vendor, try to combine contracts or get more licenses. This can help you get help with the switch to the new product. Showing the vendor that you intend to integrate the product further into your business can give you a better chance to negotiate better terms.

IT leaders should also push the provider to actively facilitate faster rollout. For example, negotiating for the vendor to provide training resources reduces the learning curve for employees. Seeking help migrating data prevents IT teams from being diverted from other priorities. Making sure your infrastructure is compatible from the start helps prevent integration problems later on.

With the vendor's direct cooperation, organizations can speed up implementation timelines, reduce project costs, and maximize value. However, IT leaders must be proactive in negotiations and unafraid to walk away if the provider won't address key transition needs.

Changing software can be tricky, but remember, vendors are eager for your business. IT leaders who come prepared with detailed cost predictions and clear needs can negotiate better. By working closely with vendors, businesses can make the switch smoothly and keep costs in check.

Mitigating software switching costs effectively

Switching business software is a significant undertaking. However, with the right strategies, such a transition can be smooth and cost-efficient. It boils down to three main actions: verifying the genuine need for change, collaborating with your team to refine the process, and negotiating optimal terms with vendors.

Investing in careful planning can lead to a smooth software switch that aligns with your company's objectives. This ensures that you reap the benefits of a better system without excessive costs. Take control of the costs associated with switching software and steer your company to future success.

For more information on the software purchasing process, visit the following resources: