How To Evaluate New Software in 5 Steps

As a business leader, you quickly learn how vital software is to daily operations. Technology plays an important role in your business processes, and picking the best business applications for your company is a daunting task. There are dozens, if not hundreds, of options in every category. Every vendor claims to have the best solution, but each app has its own unique features. If you make a purchase and it​ isn’t a good fit for your company, you risk losing time, money, and productivity.  That's why it's important to learn how to evaluate software.

Even the smallest SMB should have a software evaluation process. The strategy should include aspects such as the tool's technical capabilities, the vendor's performance, and the total cost of ownership (TCO). To evaluate software properly, you'll also need to facto​r in your b​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​usiness's unique requirements.

Fortunately, building such a strategy doesn't have to be complicated. Here is how to evaluate new software for your business in just five steps.

What is software evaluation?

Software evaluation is the process of determining an application or system's usability and effectiveness for your business.

Since most vendors offer free software demonstrations or trials, you can evaluate multiple options before making a purchase. As you evaluate software offerings, you should consider several criteria. These include each application’s feature set, TCO, and hidden costs. To ensure a fair comparison, you should develop a standardized software evaluation process.

Why is software evaluation important?

While many software packages exist for most business needs, not all apps are built the same. The scope and capabilities of some apps might not meet your needs, and others might not be cost-effective for the functionality they offer.

Software Advice's 2024 Tech Trends Survey* finds that 58% of U.S. businesses experience software purchase regret. Even worse, 41% of the same businesses say a wrong software purchase made their companies less competitive. 

Even with so many wrong choices—some of which hurt their business—86% of survey respondents reported being very (45%) or completely confident (41%) in their most recent purchase. These stats highlight the need for a thorough and standardized software evaluation process. With an effective process in place, you can have data to back up your reasons for selecting software.

Who should be involved in a software evaluation?

Commonly, businesses with software purchase regret don't make software evaluation a group process.

Sometimes, the group that will use the software makes the sole purchase decision. For instance, the finance group selected accounting software that didn't integrate with their company's other systems.

In other hypotheses, the IT department was the only one to evaluate the software for their business. While the IT team prioritized interoperability with the company's other systems, the functionality fell short for the actual users.

Instead, you should form a software evaluation team. Involve all the key stakeholders, including representatives from the groups that will use the software the most, members from your IT group, and managers and other relevant company leaders. You should also include your finance team so they can evaluate the costs for all software packages considered.

Software evaluation process

After selecting your team, the first order of business is to craft a software evaluation process. Here are five steps to include in your process, as they work well for any company and different types of software.

1. Conduct needs analysis: Put the 'why' before the 'how'

You can't evaluate a software tool until you define your expectations. To know how good a tool is, you must first identify the key pain points you're hoping to fix. For example, before evaluating an ecommerce system, you may want to ask yourself:

• Do you need to have higher sales by having your retail store online?

• Are your customers dissatisfied with the current user experience (UX)?

• Are the in-house server maintenance costs becoming too much? Will subscribing to a cloud-based tool make more sense?

Understanding the "why" will make it easier to identify "how" to eliminate the irrelevant options. If you wish to offer your customers a better UX, you can look for tools that provide a gallery of predesigned templates, a compelling shopping cart module, and a smooth checkout experience.

Some key things to consider before evaluating a tool are as follows:

• Who will head the evaluation process?

• What are the budget requirements?

• What all approvals are needed to get started?

• What is the timeline for the evaluation?

The idea is to establish a workflow, get approvals, and divide responsibilities.

2. Identify 'must-have' features: Create your own yardstick

After clearly understanding the pain points the tool will address, jot down a list of features that might help cater to those needs. In addition to the "must-have" features, create a list of "nice-to-have" features.

If you take the ecommerce software example, your "must-have" features might include a compelling image gallery and editor, a checkout system, and a shopping cart module. In contrast, an automatically adjusting webpage color scheme could be a "nice-to-have" feature.

Once you're clear about the features you need, it's time to start shortlisting the tools that meet your feature requirements. However, sorting through the numerous tools on the market to create an initial shortlist can be daunting.

For this, you can refer to research on top-ranking tools, such as our FrontRunners report. It's okay to dedicate a fair amount of time to this exercise as it lays the foundation for the next steps. Focus on trying to make the list as exhaustive as possible.

3. Select a vendor: Pick a lasting partnership

Selecting the right vendor is as important as choosing a tool with robust technical capabilities. Since software purchases are usually a long-term commitment, it's best to take some time to study the vendor thoroughly. Here are some criteria on which you can evaluate the vendor:

• Deployment options: Deployment options vary across vendors, such as on-premise, SaaS, and cloud-based applications. Each deployment option varies regarding data storage, maintenance, support, updates, etc. You must factor these in before deciding on a particular vendor.

• Customer support: The options for customer support vary across vendors. These may include email, phone, or chat support, whereas some vendors offer support only through tickets. Moreover, support can be available for free or paid.

• Additional training: Based on the complexity of the tool, your team may require additional training before using the tool. Some vendors charge for this training, while others offer free training or educational materials (such as how-to guides and video tutorials).

There are many ways to do vendor research. You can visit their website, read case studies, and refer to third-party websites for unbiased vendor reviews. If you know someone who uses the product, ask for feedback on the vendor.

Additionally, you can refer to news sources to check if the vendor has been involved in any data security breaches or overcharging.

4. Calculate the total cost of ownership: Factor in the upfront and hidden costs

Now that you've shortlisted the most relevant tools to your needs, it's time to evaluate their total cost of ownership (TCO). Gartner defines the TCO for IT as the cost of "hardware and software acquisition, management and support, communications, end-user expenses, and the opportunity cost of downtime, training, and other productivity losses." [1]

Let's see how you can calculate this:

• Project initiation costs: If you're replacing a legacy system, you need to include the cost of retiring it or keeping it operational until it's replaced.

• Initial setup costs: This refers to the cost of setting up the tool, including expenses incurred on hardware and software acquisition and implementation.

• Ongoing costs: This involves the cost of maintaining and operating the tool year-to-year. It includes fees and costs associated with server maintenance, network equipment maintenance, annual upgrades, technical support staff, and administrative training.

• Projected costs (five years): Based on the initial setup and ongoing costs, generate an estimate for the next five years to find your total cost. You should also include the costs of depreciation and amortization in this section. These costs combined will give you an estimate of the tool's TCO.

The TCO will vary based on the initial setup. On-premise deployment usually involves a higher upfront investment than SaaS. It will also vary based on licensing and subscription, maintenance and support, data migration, and hardware costs.

5. Speak with the stakeholders: Decide as a team

It's essential to include the opinions of relevant stakeholders because they have a direct stake in the purchase: They may be the tool's end-users or the process heads responsible for ensuring efficiency gains. Either way, the more perspectives you have, the better.

Here are some ways to ensure everyone's voice is heard:

• Conduct a survey: With several stakeholders involved, it may be challenging to reach everyone. One easy yet effective way of gaining feedback in such cases is to conduct a survey. Create a survey using a survey builder tool and analyze the key findings.

• Brainstorm as a group: If it works for everyone, find time to brainstorm. This approach ensures doubts are put to rest, and you may get some valuable feedback in the back-and-forth of questions and answers.

• Get one-on-one feedback: Senior stakeholders who are essential to the decision-making but are tight on time should consider having one-on-one sessions.

To conduct a survey, identify the most important concerns. Come up with a list of relevant questions that address these issues. The optimal number of questions for this type of survey is between 10 and 15.

Software evaluation: An important task for any business

Learning how to evaluate software is important, as it will save your company time, money, and frustration in the long run. Purchasing software that doesn't meet your company's needs and budget can hinder productivity, making your business less competitive.

Businesses of all types and sizes need a standardized software evaluation process, but it’s especially important for SMBs. Selecting the wrong software might hamper your company's momentum in the growth phase. On the other hand, choosing software that meets all of your criteria provides your team with the tools they need to succeed.

More resources for your software search​​​​

For more information on selecting business software at your SMB, check out these other Software Advice resources: