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The Cost of Point-of-sale Ownership

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June 01, 2005
Point of Sale | Ownership
Andrew Sichynsky - andrew.s@mindspring.com

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© 2004 Hospitality Upgrade. No reproduction without written permission.

You’ve spent a week, a month, maybe even a year researching the purchase of your POS system. You’ve negotiated for the best combination of price and features you are looking for and have made your purchase. But how much time have you spent figuring the cost of ownership of your system? I don’t mean the lease rates or the cost of paper and supplies. I am referring to the cost of maintaining, upgrading and ensuring that your system works at its optimum with the greatest amount of reliability. Many things can influence this topic including the choice of hardware and software manufacturer, the reseller and the different types of maintenance and support plans they offer.

A POS system purchase is a commitment that can last anywhere from five to eight years yet many times during the purchase process the focus is so much on the initial outlay, that little time is given to the research of ongoing ownership costs. More and more manufacturers and resellers are experiencing a decline in customer renewals of maintenance contracts for both hardware and software. The past several years of a stagnant economy have forced end users to cut costs where they can and the annual renewal bill for ongoing maintenance seems to be a likely target. There are many reasons that an end user may cut this from their budget: surprise on the renewal’s rates, cash flow, lack of perceived value or poor past experiences with service to name a few. There is no right or wrong decision on this. Each situation is unique and a careful evaluation of your situation combined with the different service offerings from the manufacturer and/or reseller should be your guide.

Maintenance and service offerings are broken down into hardware and software categories. Most vendors will allow you to choose between either or both services after the initial warranty periods. Speaking of initial warranty periods, make sure you understand what is covered, the hours of coverage, response time and the length of warranty. Vendors have different policies and terms between hardware and software warranties so it is important that you check each one individually. Once you get through the initial warranty period you will then begin to experience some of the influences on cost of ownership.

Hardware
Before you even take a look at your hardware maintenance renewal rates, take a good look at the hardware you are buying. The old adage, “You get what you pay for” really best sums it up. Buying low end hardware from an unfamiliar manufacturer typically winds up costing you more over the long haul and has a direct effect on the cost of ownership. Resellers of low end hardware are just trying to drive business on price with little regard to your long-term ongoing costs. This type of equipment many times simply does not last five to eight years and many times is costly to upgrade or cannot be upgraded to keep pace with software and/or operating system upgrades. Once you have selected your hardware check the warranties. Warranties these days last anywhere from 90 days to three years on some equipment, however, there is no such thing as a “free warranty,” so products that have longer warranties will typically cost more. Now the industry average is one year from a reputable manufacturer.
Hardware maintenance renewals after the warranty period usually are offered in several different flavors. They can range anywhere from time and materials to 24/7 coverage. The latter typically is unaffordable and if you need that type of coverage you are better served by exploring redundancy options and onsite spares-swapping that many vendors offer. The majority of hardware contracts purchased fall somewhere in the middle, with onsite coverage during a limited number of days or hours of the day being the most popular. One place that you can drive down the cost of ownership of your POS system is to explore depot maintenance, which many vendors offer. This is a plan where you keep spare equipment onsite (typically purchased at a reduced price) and swap it out yourself and then send it in for repair. In order for this to be successful, however, you must assign key personnel within your organization to be responsible for this or this plan is doomed to fail. Many times customers swap out gear in the heat of the moment, but then do not manage the repair exchange causing them to be out of spares at the worst possible time. What typically seems to be the least expensive option, time and materials(T&M) will always wind up being the most expensive over the course of time. Make sure you understand the way T&M rates are charged.

Software
Software maintenance contracts either combine or separate two very important services. One is help desk and the other is software license upgrades. Once again many end users decide to terminate this service only to regret it later. Since most vendors will include or require first year software maintenance (which is really a good thing) a good tool for you to use to determine if you want to renew is to get a report from your vendor to see how many times your operation has called for support. Many times you will be surprised as to the number of calls made and if you were individually charged for them, it would probably cost you more in the long run. Once again each situation is different. One way that a vendor can work with you to reduce the costs of these support plans is to have a key person in your organization initially field all the calls and then only call the help desk once he or she has filtered out all the frivolous or training-related calls. This will however require an investment in training on your part, but is definitely worthwhile. It will also let you get the most out of your system over time.

Cost of license upgrades must also be considered. Remember you never really own the software, you are only purchasing the license to use it. Even if you think that you will never need a software upgrade because the system you bought already has every feature you will ever use, there may always be unanticipated reasons to require upgrades. A couple of examples that come to mind are recent changes in credit card processing regulations, the inevitable discontinuance of operating system support and also, after a reasonable amount of time the discontinuance of earlier version support from the manufacturer. With the way many software support contract rates are calculated, you would have to refrain from upgrading for over five years before your decision not to renew would pay off since an upgrade without a software support agreement may require you to repurchase the entire software license. Also, consider that the “free” software upgrade included in your plan may require additional labor charges for installation and training as well as required hardware upgrades.

Remember that the purchase price of your system is only a part of the total cost of ownership. This article has touched on some things that will help you make an informed decision when calculating the total cost of owning your system and the relationship with your vendor. As a general rule of thumb, participating in some form of support from your vendor will provide you the best value and will increase the longevity of the system you purchase. Each situation is different and making an informed decision on which approach to take will create a positive situation for both you and your vendor.


Andrew Sichynsky is a POS technology consultant. He can be reached at (404) 626-4109 or andrew.s@mindspring.com.



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