- HR software generally follows two pricing models: subscription-based or perpetual licensing.
- The price of HR software depends on several factors, including the number and types of users, the features needed, its required hardware and maintenance, and any necessary training and support.
- To calculate an HR software’s return on investment, divide the estimated total revenue as a result of using the new platform by its total cost.
Price is one of the most critical factors for companies purchasing HR software but it is often the most confusing. With a staggering number of vendors on the market, HR software pricing models vary wildly from large one-time payments to annual or monthly subscription fees. Although many HR software vendors intentionally hide their fees behind quote-based pricing, companies that understand what factors influence the cost of HR software can budget and prepare accordingly for their next major company tool.
Check out our HR Software Guide for solutions to your business needs at the right price.
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How much does HR software cost?
Depending on the HR software pricing model of the vendor, companies can expect to pay somewhere in the ranges below for their HR software solution:
|HR Software Price Ranges|
|Subscription-based models||$3–$3500+ per employee/user, per month|
|Perpetual licensing models||One-time fee of $500-$100,000+|
Most cloud-based HR vendors use subscription-based pricing models. Companies must pay a recurring annual or monthly subscription fee for continued use of the software. The fee is usually based on the number of employees or users with system administrator access. Occasionally, HR vendors will also add a base monthly subscription fee on top of the per-employee or per-user, per-month cost.
Although subscription-based pricing models require companies to continue to pay a monthly or annual fee for the software, companies typically enjoy consistent software upgrades, new features, and reduced liability for data security. Additionally, many subscription-based pricing models include subscription tiers with access to more features, making it easier for these solutions to scale with businesses as their needs change.
Perpetual licensing models
On-premises HR software vendors typically use a perpetual licensing model for their software. HR buyers pay a one-time fee that includes the cost of the HR software plus any additional infrastructure to support the on-premises software, such as internal servers or other equipment.
As a result, perpetual licensing software involves high upfront costs, including the cost of the software and any hardware, integrations, and IT employees to optimize and maintain the system. Moreover, companies may incur future charges should either the software or hardware need to be upgraded, fixed, or replaced.
Which pricing model should you choose?
Vendors offering subscription-based pricing models may provide the best HR solutions for small businesses, as employers with 50 employees can purchase HR software for as low as $150 per month. Moreover, if the vendor offers subscription tiers, small businesses can pay extra for more features as their priorities change. In contrast, HR vendors with perpetual licensing models lock companies into the software’s current features upon purchase.
Nevertheless, hosting and maintaining the software internally on perpetual licensing models may be more attractive to companies dealing with sensitive data, as the risk of external security threats is significantly lower. Therefore, the best HR software pricing model for a company comes down not only to its budget but also to its security priorities, infrastructure needs, and employee headcount.
Watch: Best HR Software For Small Businesses: Top 5 HR Solutions for 2021
Factors affecting the price of HR software
Several factors play a role in determining HR software pricing, including the HR software type, the number and types of users, software features, implementation plans, hardware and maintenance, and training and support.
Type of HR software
The type of HR software the company needs influences its price. For example, all-in-one HR software, with modules for core HR, payroll, benefits administration, recruiting, and performance management, is more expensive than standalone solutions.
Likewise, HR software prices can drastically fluctuate depending on whether a company chooses an HRIS, HRMS, or HCM software solution. Human resources information systems (HRIS) are typically the most affordable, with basic data record-keeping and core HR processes. However, as companies grow, human resources management systems (HRMS) and human capital management (HCM) can provide additional functionality in workforce management and strategy. As a result, the latter solutions are the most expensive on the market.
Also read: HRIS vs HRMS vs HCM: What Is the Difference?
Number and types of users
Many HR software vendors base their prices on the number of software users. For many vendors, the number of users is equivalent to the number of employees in the company. Thus, for HR software with subscription-based pricing models — especially those with self-service features — companies could pay more or less per month for the same features as their employee count changes.
However, other vendors define the term “users” differently. For example, some vendors define users as system administrators: employees responsible for maintaining the data in the system, such as HR, IT, or management teams. Therefore, buyers should research how HR software vendors define their platforms’ users, as the cost of the vendor’s HR solution can considerably increase or decrease depending on their definition.
Customization and features
Generally, the more features a company needs, the most expensive the HR software solution will be. Most solutions have a core set of features plus “add-on” features for additional capabilities and customization. These add-ons, integrations, and customized workflows can drive the cost of HR software up. To control costs, companies should determine what are must-have HR features compared to nice-to-have features to save for later when the budget allows.
Companies should expect an additional one-time implementation fee depending on the HR software vendor. Implementation fees typically include installation, data migration, and access to implementation specialists for support. Companies should also consider the indirect costs associated with HR software implementation, such as how much time IT and HR employees spend on the implementation project instead of their other duties, and factor those into their overall HR software budget.
Hardware and maintenance
Total implementation costs may increase depending on the hardware the company needs to run its HR software, such as internal servers or updated computers. Vendors may also charge additional fees for system maintenance, including necessary feature upgrades or security patches.
Businesses with internal IT departments could forgo such costs; however, the time IT dedicates to the HR software’s upkeep will affect the solution’s overall return on investment (ROI).
Training and support
HR software vendors typically include software training as part of their implementation fee; however, companies may incur additional fees from their vendors for additional training or suggestions for more efficient workflows after implementation. In addition, the time HR staff are pulled away from other essential duties to train new staff members or hire more staff to support the new system can affect the company’s total labor costs.
Companies that take advantage of HR or software consultants for support should also factor in their fees as part of their HR software costs. In the United States, consultants cost an average of $150 per hour but this varies widely based on the scope of the implementation project and its timeline. Still, instead of hiring additional staff, companies can lean on consultants for expert software selection guidance or for outsourcing particular tasks, such as hardware maintenance.
How do you determine an HR software’s return on investment?
To calculate an HR software’s ROI, compare its business impact against its total cost. You can measure the new HR software’s contribution to the overall company by examining the following:
- Increased productivity and efficiency: How much time does your team save by automating rote tasks? How does the software help your team tackle larger company goals?
- Reduced employee turnover: How much did your company save in recruitment costs due to the HR software implementing more streamlined hiring and training processes?
- Increased compliance: How much does your company save due to reduced reporting errors or labor law violations?
- Improved company culture: How much time does your team save through the HR software’s employee self-service feature? How much more engaged are employees as a result of the software?
After estimating the revenue produced from the new HR software, HR managers should divide this by the software’s total costs to calculate the software’s ROI. Remember to include the monthly subscription costs and the costs associated with implementation, training, software maintenance, consultancy fees, and staffing.
In most circumstances, HR software’s benefits far outweigh its costs. As a primary HR metric, estimating the HR software’s ROI before purchasing is critical to creating C-suite buy-in. While the price of an effective HR solution may seem daunting at first, an HR software solution is necessary for any business looking to outperform and outpace its competition and continue to grow into the future.
Take a look at our HR Software Guide for a variety of affordable solutions to meet your particular needs.
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