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UK accounting software; Do-it -Buy-Yourself

In short

This study investigates the relationship between price and functionality of UK accounting software. Based upon the data of 42 programs we can conclude that there is no statistical relationship between price and functionality. Not surprisingly however, there is a strong relationship between the way a program is sold and the price. Programs sold via a sales force are far more expensive than programs where a test version is available for users to evaluate and subsequently purchase directly.

Selection of programs

With the help of web search engines and directories we made a list of generally applicable UK accounting software. The search was conducted during February, March and April 2005 and resulted in about 75 programs being found. From this list of 75 we then removed programs where we could not find enough information about price, costs and/or functionality on the web site of the producer. Finally the calculations were done with the data from 42 programs; click here for the list of all programs.

Calculation of the price factor

What are the overall costs of an accounting program? The UK market shows a very broad range of prices and fees; prices being the amount paid for the program itself and extension modules, fees being additional amounts charged for support, updates and usage. The lowest purchase price we found was 0 pounds and the highest purchase price we noted was 15275 pounds. The yearly fees ranged from 0 pounds to 2291 pounds. To create a level playing field we calculated the total yearly costs: the sum of the purchase price depreciated over 5 years plus all periodical charges for maintenance and/or support and/or use of the program. Furthermore we restricted ourselves to the price of the basic version of the program. In general it is this version which is aimed at the same group: the smaller companies. The total yearly costs of the 42 basic versions were to be found in the range of 0 pounds to 786 pounds.

Calculation of the functionality

What does the program do? The answer to that question concerns the functionality. We measured that by first defining a list of functions which can be found in accounting software:
1 Basic maintenance
2 General Ledger
3 Sales Ledger
4 Purchase Ledger
5 Fixed Assets
6 Purchase
7 Stock Control
8 Sales
Then for every function we created a list of available sub functions. For example for the function General Ledger we created a sub list comprising Budgeting, Cost Centres, Multi-currency, Consolidation, Process Electronic Bank Statement, VAT Return, EC Sales List and Intrastat and Recurring Journal.
The second step was to determine which (sub)functions are available for each program. We reviewed the section of the web site of the producer dedicated to that specific program. To be sure that our analysis did not contain errors we asked every producer to then review our results.
The last step was to calculate the functionality factor. Each available function is awarded 4 points and every sub-function 2 points. The sum of all these points determines the functionality factor and gives an indication of the level of functionality of the program. This variable ranged from 8 through 62, from a very limited program up to a very extensive program.

The results

The exercise resulted in a table of price factor against functionality factor. We might expect a low price factor for a program with a low functionality factor and correspondingly a high price factor for a program with a high functionality factor. The results for the collection of accounting programs are as follows:

The price explained

There is clearly little relationship between price and functionality. What accounts for the continued sales of programs which are very expensive? We surmise that expensive programs can only be sold thanks to an (expensive) sales force. The function of sales people is to emphasise the functionality of the program, selling on performance rather than cost.
In practice accounting programs are sold in two ways. In the first way you can download a test version of the program, give it a try and then decide yourself if you want to buy it. If so, you just order it from the producer, or sometimes via a reseller. The sales process is done by yourself, so these are Do-it-Buy-Yourself programs.
In the second way no test version is available. Anyone wishing to know more about the program must contact the vendor and are then subjected to a sales process probably involving a demonstration. During this or subsequent demonstrations the sales person has to sell the program, a Sales Job.
Does accounting software merit a direct sales methodology? Accounting practices are well established and understood. Paradoxically for high functionality programs customers are sophisticated, needing little guidance while unsophisticated customers typically have need of only bare-bones functionality, are on very limited budgets and would welcome guidance.

We divided our population of programs in two groups. The first group contains the programs where a test version is available. The second group is reserved for the programs where there is nothing available to test. The average total yearly costs of the first group – the Do-it-Buy-Yourself programs - is 114 pounds. The second group – those subject to a Sales Job - have a mean of 249 pounds for a similar level of functionality. Being sold by a direct sales force means a price tag which is more than twice as high as that of a Do-it-Buy-Yourself program.

This is only a rough estimation. We can be more precise by calculating the total yearly costs per accounting function. This is done by dividing the Price factor by the Functionality factor/4. These calculations result in an average of 21 pounds. That means on average the total yearly costs for one accounting function are 21 pounds. The average for the Do-it-Buy-Yourself programs is 13 pounds and the average for the Sales Job programs is 35 pounds or almost 3 times as expensive.

Conclusion

The total yearly costs of accounting software are more or less independent of the functionality of the accounting program. In other words, the functionality of an accounting program does not determine the price and other charges. However there is a strong relationship between the total yearly costs and the way a program is sold. If there is a test version available then the price is very low as compared to the programs which are sold by a sales force. The latter group is approximately three times as expensive. Moral: D-I-Y may also be cheaper in accounting.

Anton Greefhorst
May 2005

Anton Greefhorst is a dutch CPA who is specialized in research on accounting software.