In this article, we share how you can secure the best possible deal from HR tech vendors and get the software that actually right for you.
HR Tech Pricing Models
First up, it’s important to understand the different ways HR Tech vendors price their software.
With user-based pricing, you’ll pay a license fee for each user you add to the system.
For software where the number of users will fluctuate a lot (like applicant tracking systems where you’ll need lots of hiring managers using the system during busier periods of recruiting), it can get expensive fast—and nobody wants to ask for more budget halfway through the year.
If that’s not the case for the project you’re working on (or you only have a small number of users), then user-based pricing could work out well.
Your use of the software is a proxy for the value that the vendor thinks you’re getting from it. If you’re buying an applicant tracking system you might pay per job you create, or for a payroll solution you might be charged based on the number of employees you have.
This can be a good way of getting access to the software you couldn’t otherwise afford, and making sure you only pay for the value you get.
If the solution you’re evaluating uses value-based pricing, make sure you plan all the expected spend for the year properly—nobody enjoys asking for more budget halfway through the year. On that note, some vendors allow you to pre-purchase usage in bulk at the start of the year and this will usually attract a significant discount.
Finally, beware—some vendors will still have a base package you have to buy to get access to the platform (with a usage-based fee on top of this). The base package you choose will usually determine things like the features you get access to.
Lots of HR tech vendors enable you to pick and choose which features you buy on top of their base package(s). This can be great if you only need their basic package, and don’t plan to need more functionality in the future.
For teams that care about having access to new features, this probably isn’t for you as the vendor will likely charge you for many of the new features they launch over time.
You only pay one fee no matter how much you use the software. Flat rate pricing is usually based on something like the size of your organization as a proxy for likely usage. This is particularly attractive if you want access to all the new features the vendor launches, to fix the amount you’ll spend, or if you’re planning to increase your use of the software over time.
Making your procurement process good for the vendor = better results for you
If you make your procurement process easy for the vendor, you’ll often get a better deal.
Most software vendors will require you to buy a more expensive subscription if you need things like custom contract terms, lengthy security questionnaires completed before you buy. For others, the sales team has some discretion, and making the process easy for the sales rep means they’re likely to find a way to be flexible around whatever parts of the deal are most important to you.
And if your procurement process is at an extreme, most of the best vendors will outright refuse to participate. We’ve seen it all—from reverse to auctions to 200 question RFPs for $5,000 projects. Only the most desperate vendors will participate in these processes.
And they’re rarely good for your organization.
Sometimes these processes result in you getting the cheapest vendor. They rarely result in you choosing the right vendor. And they almost always result in the vendor that “wins” resenting you before you even start on implementation.
HR tech projects should be owned by the HR/people team who know what’s most important to them. Sure, procurement can (and should) help with contracts and making sure you’ve covered all the bases, but for most organizations, they shouldn’t be running the process and they shouldn’t be getting in the way of selecting the right vendor.
Evaluating total cost of ownership
When comparing HR software vendors, it’s easy to focus on the monthly cost or the cost per user.
But there are a bunch of other things that affect the total cost of ownership. If your CFO doesn’t see these things addressed in the business case you put forward they’ll assume you’ve not done your homework.
Here are some of the things that need to be included in the overall budget in addition to the cost of the software itself:
- User training fees
- Implementation fees
- Customization fees
- Integration fees
- Data migration fees
- Support contract fees
At Pinpoint we never charge extra for any of these things—they’re all just part of your software subscription—but that won’t be the case for most vendors so you need to have the discussion upfront with each vendor before putting your proposal forward for approval.
Ensuring you don’t get nickel and dimed
If something seems too good to be true, it probably is. The vendor might be reeling you in with attractive pricing today, only to charge you for every additional feature you want access to in the future.
At the start of the pandemic, an applicant tracking software vendor launched a new Zoom integration for interview scheduling and offered access to it for free for a few months, before starting to charge them a fortune for access to it once they were hooked.
Make sure you know whether you’ll be “grandfathered in” when it comes to new features and feature improvements, or whether you’re going to have to pay.
Evaluating return on investment
What do you do if the software you want to buy is significantly more expensive than its nearest competitor? Or what if it’s completely out of budget?
There may still be a way.
A good CFO will care as much (or more) about return on investment than securing the best price. How will this investment save the business money?
Presented with the options of spending $10k on a piece of software that won’t save any money vs spending $30k on a piece of software that’ll achieve a saving of $60k the choice should be obvious.
The HR tech vendors you’re evaluating should be able to help you to put together your business case. For example, if you’re investing in applicant tracking software but use a lot of external recruiters, consider how the new software will help you make more direct hires and reduce fees from external agencies. Or perhaps you’re using lots of job boards and aren’t sure which ones deliver the candidates you actually hire—a recruitment marketing platform or ATS could help you optimize your recruitment advertising spend.
But beware of relying too heavily on numbers like time saved on admin. Your CFO probably won’t care about time savings unless the saving will enable a reduction in overall headcount, a reduction in the hiring plan, or other improvements in the business that can be clearly tied to the bottom line.
Make sure that your ROI forecast is supported by real customer case studies that showcase what the vendor is saying has played out for real in the past.
Build your business case with this free template
Securing the best price
Most HR tech vendors have flexibility on pricing. Whether you care more about overall price, payment terms, or having a flexible contract will determine what “best” looks like for you.
If you’re willing to sign a longer contract (usually 2+ years) you’ll often be able to secure a discount on the total cost. Many buyers forget that this is even an option, but very few companies plan to implement a piece of software and then switch it out in less than 12 months.
If you’re happy to pay for a multi-year contract upfront, you can usually improve on that discount too.
If extended payment terms or more regular smaller payments are important to your business, you’ll usually be able to forego a discount (or pay around 15% more than the list price) to secure quarterly or monthly payment terms.
Things to consider if you’re planning to grow
Software vendors will often offer low introductory pricing in the hope that you’ll grow your organization and pay more in the future.
If you’re planning to grow your organization significantly, you can often secure a 2+ year contract with fixed price increases (or, sometimes, no price increase at all) so you can lock in today’s price for the future. The vendor will be happy because they have committed revenue, you’ll be happy because you fixed your cost.
HR Tech Business Case Template
Use this free template to make sure you've covered all the bases, and get buy-in from the rest of your organization.